Reservation of Title and Charges on Company Book Debts: The Death of Romalpa?

Published date01 September 1991
DOIhttp://doi.org/10.1111/j.1468-2230.1991.tb02666.x
Date01 September 1991
The
Modern
Law Review
[Vol.
54
Reservation
of
Title and Charges on Company
Book
Debts: The Death
of
Romalpa?
John
de
Lacy*
Although the modern reservation of title, or Romalpal clause, to give it its generic
name, remains an anathema
to
many, the revolutionary effect that the device was
to
have had on established commercial sales practice (by allowing a seller to trace
the proceeds of authorised dispositions) has proved
to
have been of relatively short
duration. In the case
of
Re
Weldtech
Ltd2
this fact was once again demonstrated.
Weldtech Equipment had been supplied with welding equipment by a German
company,
Ess,
subject
to
the following reservation of title clause:
The
goods
remain our property
until
payment of the purchase price including any additional
costs is effected
in
full
and
until
all
cheques and drafts have been cashed.3 This right is
rescrvcd for as long as we may have any claims against the purchascr resulting from other
deli~eries.~ With the cxception of goods sold to a company for resale within the framework
of thcir normal business operations, the customer is
not
entitled to
sell
or otherwise dispose
of the goods before
full
payment of the purchase price. In the case of authorised resale
of
goods supplied by our company
(in
thc original or a modified form or as an integral part
of other deliveries)
all
rights
to
which the purchaser
is
entitled as a result
of
the contract
with the third party,
in
particular for payment of the purchase price, are transferred to
us
automatically upon completion
of
the sale.
The purchaser is obliged
to
advise us immediately of the resale or disposal of the equipment,
stating the
full
address of the third party involved and the main content of the purchasing
contract,
in
particular the terms
of
payment. This transfer takes place only for securing our
claims against the purchascr and does not affect his payment obligations
to
US.^
Before payment in full had been made, Weldtech went
into
liquidation and
Ess
sought
to
recover the welding equipment and/or any proceeds
of
subsale that
it
might
represent. The liquidator, in Hoffmann
J’s
view, ‘correctly’6 handed over
to
Ess
part of the equipment that was still in the company’s possession at the date
of
the
liquidation, but the dispute concerned
Ess’s
claim7 for
fl1,OOO
representing
proceeds
of
subsale
of
the remaining equipment which had been paid into a separate
account pursuant
to
an earlier court order.
It was claimed on behalf of the liquidator that the reservation
of
title
clause, in
so
far as it extended to the proceeds of subsale, amounted
to
a charge on the book
debts of Weldtech which, being unregistered pursuant to section
396(
l)(e) Companies
~~~~~ ~~~~~ ~~ ~~
*Lecturer
in Law. Faculty of
LAW,
University
of
Manchester.
Sec
A/I(III~II~IIIII
Irrtlrtstrie
V(~ctssett
BV
v
Rortrcdpc~
AI~~i~ritriuii~
Ltd
[
I9761
I
WLR
676.
[I9911
BCC 16.
ic
a simple reservation of
title
until thc price of thc
goods
is
paid.
This appears
to
be
a
currcnt
account
clausc, which is designed
to
prcvent
fitle
vcstiny under any individual
contract of
sale
so
long
as
the price
of
goods is
still
outstanding on other contracts of
sale.
This clause was a translation from
the
German original. One is reminded
of
the
Roiiicdpn
case.
slc/~,w
at
6841),
wherc Roskill
LJ
reniarkcd.
of
a similar crude translation from
a
Dutch contract of sale
clause. that
it
was ‘not DcrhaDs verv
well
CXDrCSSed.’
..
src/””
it
I7C.
Howevcr. bv the
date
of
the
hearing.
Ess
amcared
‘to
have lost interest in the matter,’
Stl/N?7
at
17B
.
..
/JC~
Hoffinann
J,
they being unrep&entetl, exccpt for an affidavit filed by
otic
of thcir kniployces
to
the effect that their claim
to
the proceeds was valid
under
German law (which the contract was
cxprcsscd
to
bc
govcrned by).
736
Scptember
19911
TIie
Decith
of
Ronialpa
.?
Act
1985,*
was void against him. Although the contract of sale was governed by
German law it was ‘clear’9 to Hoffinann
J
that the registration provisions of the
Companies Act ‘apply
to
all charges created by companies registered
in
England,
whatever may be the proper law of the instrument which creates the charge. This
is
particularly
so
when the charge is over book debts owed by English companies
which are treated as being situated in England.’lo After analysing the clause,
Hoffmann
J
concluded:
It appears
to
me plain,
on
the wording of the clause
and,
in
particular, the sentcncc ‘This
transfer takes
place
only
for
securing
our
claims
against the
purchaser’
-
that
the
assignment
was, indeed, intended to be by way
of
charge.
The
cffcct
of
such
assignments
is
analysed
by
Phillips
J
in
the
case
of
Totutig
(UK)
Ltd
v
Galex
Telesitre
Lid” in
terms with
which
I
respectfully
agree and his
analysis,
in
my
judgment,
covers
this
case. It follows that the
reservation
of
titlc clause is
void
against
thc
liquidator.l*
As a result of this judgment the proceeds went
to
meet the claims
of
Weldtech’s
bankers who held a prior registered charge over their book debts.
The importance of this case is that
it
confirms (if, indeed, confirmation were really
needed)I3 that the Romalpa clause, in
so
far as a claim relates to the proceeds
of
subsale, amounts
to
a registrable charge on book debts for the purpose of
the
Companies Act.
In
this respect, the euphoria surrounding the original
Rornalpa
case
seems but a distant echo and one is forced
to
conclude that the decision of the Court
of Appeal in that case has virtually been relegated, for all extensive purposes,
per
incurianr.
Nevertheless, although Hoffniann
J
agreed with the analysis of Phillips
J
in
the
Tutung
case, there is one significant distinction between the
two
situations.I5 In the
Tuturig
case,
the
buyer was expressed to hold the goods
as
a
bailee and although
given
a
power of subsale, any proceeds realised were
to
be maintained
in
a separate
account by the buyer as a trustee
on
behalf of the seller. The present case contained
no such express proceeds clause but merely purported
to
assign any claims the buyer
might have against sub-buyers for the proceeds. However, such claims were clearly
only intended
to
operate should the original buyer default in making payment.
It
therefore appears that the seller
is
in a ‘no-win’ situation, for
if
he attempts to
expressly render the buyer a fiduciary, such rights will be deemed to be conferred
8
9
10
II
12
13
14
IS
This section is
to
be replaced by
:I
new
s
396(
I)(c)(iii),
by
virtue of
s
93
of thc Cornpanics
Act
1989,
to
come into force on
a
day yet to be appointed.
sriprn
at
I7
F.
ibi4
see Dicey and Morris,
TIrc
Conflict
of
Imvs
(I
Ith
ed,
1987)
vol
2
at
p
1266.
(1989) 5
BCC
325,
criticiscd
at
(1989)
10
Co Law
188.
SCC also
ffeiffer
Weifike//erei-Weiric.irrkolif
GtrrbH
v
ArBtiilittor
Focrors
Lid
[
19881
I
WLR
150;
and note the recent Irish casc
of
Cord
Glniip
Dis~r~ibri~o~s
Or!
v
Borirke
LI~
[
19901
ILRM
285.
.SM/>IYI
at
17G-H.
sriprrr
at
I1
I
I
.
In
Torroig
v
Gcth
Trlesrire,
sripro
at
337D-E,
Phillips
J
concluded his judgment:
Whilc
1
have distinguished this case
from
Romrlpr
I
respectfully question the conclusion
of
Mocatta
J
that
no
registrahle charge
WBS
created
in
that
casc. The conclusion
that
I
have rcachcd is not contrary
to
the undcrlying object of retention of title clauses which
so
influenced the
Court
of Appcal
in
Rorrtolpn.
While that object makes
it
desirable for the scller
to
acquire an interest
in
thc proceeds
of
sale
or
other disposal of thc goods supplicd by way of security,
it
does not require that the
seller be free of the obligation
to
rcgister that interest under what
is
now
s
395
of the Companies
Act
1985.
For
a
critique see
(1989)
10
Co
Law
188,
190.
Consider the warning givcn
by
Robert Goff
LJ
on
this point
in
Clorrfili
Mill
I.rd
v
Morritr
[
198Sl
I
WI,R
110,
I14F-H.
737
The
Modern
Law
Review
[Vol.
54
by the contract and thus be registrable under the Act,16 while
if
no such right is
expressed there is deemed to be no basis for construing a fiduciary relationship17
(although, in the present case, Hoffmann
J
did not consider whether the simple
reservation of title clause
per
se
could have constituted the buyer a fiduciary’*
which would have allowed the twignation clause to be severed). Further,
it
is
submitted that Hoffmann
J
may have placed too much reliance on the word ‘securing,’
for
it
must be remembered that the clause was a rather crude translation from the
German original.
I9
In
this context, such a right of assignation usually amounts
to
no more than a procedural device designed to give the seller direct recourse against
a third party subpurchaserZo should the buyer However, as the sellers
were content not to be represented at the hearing, the conclusions of Hoffmann
J
were, perhaps, understandable and, in the light of recent English authority on the
subject, almost inevitablea2’
It
is to be hoped that
it
is
not too long before a seller has the temerity to take
the point of the fiduciary nature of the Romalpa clause before the House of Lords2)
and the commercial community can at last benefit from a definitive exposition
of
the law
in
this area. However, for the time being, at any rate,
it
is safe to conclude
that the Romalpa notion
IS
effectively dead and buried.24
16
17
in
19
20
21
22
23
24
See
Tatioig
v
Galex ‘I‘ebwtre Ltd, supru.
See
Re
Ati~lrcrbell
Ltd
[
19841 3
All
ER 407, 416d.
This is certainly the position
in
the Irish Republic where the Romalpa clause has been welcomed with
open arms, see
Re
Srokos
&
McKiertmrr Ltd
[
19781 ILRM 240;
Sugar Distributors
v
Motraghati Cash
&
Carry Lid
[
1982) II.RM 399;
Foioiduries
dilc
Lion
v
Itrtcntariotiol
Factors
Lid
[I9851 ILRM 66;
cf
Carroll Group Dis/riDutors Ltd
v
Bourke,
supra,
analysed at (1990)
8
ILT 279.
It
should not be
forgotten that the original Ronialpa clause, upheld by the Court of Appeal, only related to
a
simple
reservation of title; sre the observations of Judge Rubin
in
Bordeti
(UK)
Ltd
v
Scottish
Timber
Products
IJd
(
19791 2 Lloyd’s Rep 168, 172 (overturned on appeal on different grounds at
[
19811 Ch 25); see
also
Leti
Vidgetl Ski
&
Ln!isicre Ltd
v
Titticiric Marine Supplies
(1982)
Ltd
[
19861
I
NZLR 349, 364, lines
22-23, where Barker
J
states that: ‘The first
part
of the clause states that the goods sold by the [buyer]
remain the property of the [supplier], this indicates strongly that thc parties did intend that the [buyer]
would be accountable to the (supplier] for the proceeds, and would not receive them for its own account.
It
provides
a
bask for implying into the agreement
a
duty on the
part
of the [buyer] to keep the proceeds
separate from
its
own moneys, consistent with the obligations of
a
fiduciary.’ (Although
it
should
be noted that
thv
supply contract
in
this case also included a proceeds clause, but that fact alone would
not appear to tlctract from the generality of the statement.)
See
n
5
sicprir:
see
also
Siehe
Gorttrciti
&
Co Ltd
v
Barclays
Bank
Ltd
[
19791
2
Lloyd’s Rep 142,
162, col 2
pr’
Slade
J.
It
should be
n
jted that the classic Ronialpa fiduciary relationship involves the existence of an internal
sale agency
iii
which the buyerlagent subsells
as
principal thereby denying any relationship between
the seller/pi incipal and the subpurchaser; see the
Rotnalpa
case,
supra
at 690C-E
per
Roskill
W;
see
also
‘Atliiiiiiistrative Caution’
[
19891 LMCLQ 506, 51
I
point (iv) and ‘The Anglocisation of Irish
Retention
01
Title‘!’
(1990)
8
ILT 279,280 where the fiduciary nature of the Romalpa clause is explained.
See the
Rw~icilpa
case,
sicprn
at 692H-693A, where Goff
W
describes
a
similar provision
as
‘ancillary
only’ to the main contract which rendered the buyer
a
fiduciary, and at 688H
per
Roskill
W
to like
effect, and. by way of analogy,
Flirrtoji
v
Royd
Batik
of
Carrada
119641 SCR
631.
See
n
I
1
supra.
See, for example,
Arttioirr
v
Thywri
Edelsrahlwerke
AG
[
19901 3 WLR 810, wherc the House of
Lords overruled
a
series of Scottish decisions that had classified the
all
sunis type of reservation of
title cl~iusc
as
a
security interest contrary to Scottish common law. See
(1991)
6 JlBL 201.
cf
Hetidy
Letitiox
Ltd
v
Grcrhritne
Puttick Ltd
[I9841
I
WLR 485, 493F
per
Staughton
J
where the
law
of
reservation of title was described, with the now ubiquitous phrase,
as
‘a
maze
if
not
a
minefield.’
At
thc
present time, the only remaining problematic area appears to be
in
respect of mixed goods;
consider, for example,
Bordeti
Ltd
v
Scottish
Timber
Producrs Lrd
(
19811 Ch 25;
CIorcgh Mill
Ltd
v
Mirriti,
supra
at 119G-H
per
Rohert Goff
I,J,
123H-124C
per
Oliver LJ; see
also
(1990)
106
LQR
552 (Watts).
738

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