Clough Mill Ltd v Martin
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT GOFF,LORD JUSTICE OLIVER,THE MASTER OF THE ROLLS |
| Judgment Date | 15 November 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J1115-2 |
| Docket Number | 84/0426 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 November 1984 |
[1984] EWCA Civ J1115-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE O'DONOGHUE, sitting as a Judge of the High Court)
Royal Courts of Justice.
The Master of the Rolls
(Sir John Donaldson)
Lord Justice Oliver
and
Lord Justice Robert Goff
84/0426
1981 C. No. 627
MR. DENIS HENRY, Q.C. and MR. J. BONNEY (instructed by Messrs. Foysters) appeared on behalf of the (Plaintiff) Appellant.
MR. WILLIAM BLACKBURNE, Q.C. (instructed by Messrs. Godlove Saffman Lyth & Goldman) appeared on behalf of the (Defendant) Respondent.
This appeal is concerned with what is sometimes called a "retention of title clause", but more frequently nowadays a "Romalpa clause". The appellants, Clough Mill Ltd., carry on business as spinners of yarn. Under four contracts entered into between December 1979 and March 1980, they contracted to supply yarn to a company called Heatherdale Fabrics Ltd., which carried on business as manufacturers of fabric. When the appellants entered into these contracts, they knew that the yarn to be supplied under them was to be used by Heatherdale (which I shall refer to as "the buyers") for such manufacture. Each of the contracts incorporated the appellants' standard conditions. These included a condition (condition 12) entitled "Passing of Title"; this is the Romalpa clause, with the construction and effect of which this case is concerned. It is convenient that I should immediately set out the terms of condition 12. It is a continuous clause, but I will, for convenience of reference, segregate the four sentences of which the condition is comprised into separate paragraphs. It reads as follows:
"However, the ownership of the material shall remain with the Seller, which reserves the right to dispose of the material until payment in full for all the material has been received by it in accordance with the terms of this contract or until such time as the Buyer sells the material to its customers by way of bona-fide sale at full market value.
If such payment is overdue in whole or in part the Seller may (without prejudice to any of its other rights) recover or re-sell the material or any of it and may enter upon the Buyer's premises by its servants or agents for that purpose.
Such payment shall become due immediately upon the commencement of any act or proceeding in which the Buyer's solvency is involved.
If any of the material is incorporated in or used as material for other goods before such payment the property in the whole of such goods shall be and remain with the Seller until such payment has been made, or the other goods have been sold as aforesaid, and all the Seller's rights hereunder in the material shall extend to those other goods."
There are certain other conditions to which, though of less importance, I ought to refer for the sake of completeness. Condition l(a)(ii) provides that "material" means the "material to which this document relates". Condition 10, which is headed "Overdue payments and cancellation", provides (inter alia) as follows:
"(a) The price payable for the material shall be net and payment shall be made within the period stated overleaf.
…
(c) The Seller shall be entitled to suspend or cancel further deliveries under this or any other contracts between the parties hereto:
(i) if any payment is overdue…
(d) For the purpose of this condition, time of payment shall be of the essence of the contract.
(e) The Buyer shall not be entitled to withhold or set-off payment for material delivered for any reason whatsoever."
Condition 11 provides that the risk in the material shall pass to the Buyer on delivery.
On 11th March, 1980 the respondent, Geoffrey Martin, was appointed receiver of the buyers under the terms of a debenture granted in favour of Lloyds Bank. On that date the buyers still owed to the appellants part of the purchase price due under each of the four contracts, and the buyers retained at their premises 375 kilogrammes of unused yarn supplied under those contracts and still unpaid for. So on 11th March, 1980 the appellants wrote to the respondent expressing their intention to re-possess the unused yarn, and on 19th March their solicitors wrote a further letter to the same effect, invoking the appellants' standard conditions, and requesting the respondent to stop using the unused yarn in the manufacture of fabric. On the following day, the solicitors acting for the respondent replied that the appellants' retention of title clause was invalid for (inter alia) non-registration under section 95 of the Companies Act 1948, and that the respondent would therefore continue to allow the yarn to be used and would refuse the appellants admission to collect it. The respondent has since allowed the buyers to use the yarn in its manufacturing process, but the balance of the price has not been paid. The appellants therefore commenced proceedings, claiming damages from the respondent for conversion of the yarn. His Honour Judge O'Donoghue, sitting as a Judge of the High Court, dismissed the claim, holding that, on its true construction, condition 12 created a charge on the yarn and that such charge was void for non-registration under section 95. It is against that decision that the appellants now appeal to this court.
There has been a spate of decisions in recent years concerning these so-called Romalpa clauses. But it is of great importance to bear in mind that these cases have been concerned with different clauses, very often in materially different terms; that different cases have raised different questions for decision; and that the decision in any particular case may have depended on how the matter was presented to the court, and in particular may have depended on a material concession by counsel. So this is a field in which we have to be particularly careful in reading each decision in the light of the facts and issues before the court in question. So, for example, the original Romalpa case, Aluminium Industrie Vaasen B.V. v. Romalpa Aluminium Ltd. [1976] 1 W.L.R. 676, was concerned with the question whether sellers of aluminium foil under contracts containing a Romalpa clause could trace their title into money which was the proceeds of sale by the buyers of aluminium foil supplied by the sellers. That question (which was answered in the affirmative) was considered on the basis that, as was admitted by the buyers, title to the foil itself had been retained by the sellers, and that the buyers became bailees of the foil on delivery to them. By contrast, the question in the present case is whether, under condition 12, the appellants did indeed retain their title to the yarn, or (as the judge held) thereby became chargees of the yarn, a point which did not fall for decision in the Romalpa case. Again, in In re Bond Worth [1980] Ch. 228, a case upon which the judge in the present case placed particular reliance, Mr. Justice Slade (as he then was) had to consider, in relation to facts of considerable complexity, a clause which provided not simply that "the ownership" in the goods should be retained by the sellers, but that "equitable and beneficial ownership" should remain with the sellers until full payment had been received or until prior resale, in which case their "beneficial entitlement" should attach to the proceeds of sale. In that case, therefore, it was never suggested that the sellers retained the legal title to the goods; the only two possibilities were the creation of a trust or of a charge, and Mr. Justice Slade held that it was a charge which had been created. Finally, in Borden (U.K.) Ltd. v. Scottish Timber Products Ltd. [1981] Ch. 25, the question at issue was whether, under a contract of sale of resin containing a Romalpa clause, the sellers could trace their title into chipboard in which resin supplied by the sellers had been incorporated during its manufacture by the buyers. This court held that they could not do so, the manufacture of the chipboard having amalgamated the resin and other ingredients into a new product by an irreversible process, so that the resin ceased to exist and the title in it must also have ceased to exist. However in that case Lord Justice Templeman (as he then was) made certain observations about the general effect of the Romalpa clause in the contract then before the court, which have been of assistance to me in considering the question in the present case.
I approach that question as follows. We have to construe condition 12 as a whole, and in its contractual context; but it is convenient to start with the opening sentence of the condition, upon which the appellants particularly rely. In that sentence, it is provided that "the ownership of the material shall remain with the seller, which reserves the right to dispose of the material until payment in full for all the material has been received by it in accordance with the terms of this contract or until such time as the buyer sells the material to its customers by way of bona-fide sale at full market value." (I have corrected the words "have been received" to "has been received": this is obviously a misprint). Now there are various points to notice about this sentence. The first is that what is reserved by the seller is the ownership of the material, the material being (see condition 1(a)(ii)) the material supplied under the particular contract. Prima facie, in a commercial document such as this, ownership means, quite simply, the property in the goods. The second point is that the reservation of the...
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