So here's how it works In England and Wales (and probably other jurisdictions that I don't study): when a company goes bankrupt, they call in the receivers. The receivers' job is liquidate all the company's assets and pay off as many of their debts as possible. Entities to which the company owes money are likely to be their secured creditors, the receivers themselves, employees, shareholders, the tax man, and other companies that they have dealt with. It is the latter that we are concerned with.

You see, there is a list of different brackets into which the above fall, and it determines who gets paid when, and if there's no money left by the time it gets to them, they lose out (incidentally, employees are really far down this list). So, in a scenario where Company A has sold, say, six hundred tonnes of iron to Company B. Company B goes bankrupt before they've paid, but after they've taken delivery, Company A is going to want to get their money from the receivers, or at the very least get their iron back.

Unfortunately for Company A, in order to get their money back, they would need to sue for breach of contract, and that is wa-a-ay down the receiver's little list of who to pay. Moreover, since the company's gone bust, there is almost certainly not going to be any money left. So, what are they to do?

You might think that since the iron hasn't been paid for, it still belongs to company A. You are in fact, wrong. I won't go into the legal reasons why because the way in which title passes is an area of law in itself, but the common sense reason is that often in order to pay for goods, companies need to make something out of them and sell them, and if they didn't own the goods, they wouldn't be legally able to do this. So, therefore, in English and Welsh law, Company A does not have legal title to the iron.

Unless, that is, they've been clever.

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976]1

Romalpa, is an important case, so important in fact that retention of title clauses are often just called Romalpa clauses. It is one of the most heavily studied cases in English law, and has lead to a forest's worth of paper in litigation. Unfortunately, it is also famous for being an extremely poor judgement.

The facts: Romalpa bought a quantity of aluminium foil from the Dutch company Aluminium Industrie using a translated version of AIV's standard contract. Romalpa, subsequently became insolvent and called in the receivers. Just prior to this though, it had attempted to sell off the foil at a low price in order to pay off some of its debts. This money went into a separate bank account.

At this point, AIV pointed, rather smugly, to Clause 13 of their standard contract, which stated that the foil remained their property until Romalpa had paid off any and all debts due to them. It also provided that until then, the foil had to be stored separately, and although Romalpa may manufacture products from the foil, title to the products was with AIV as surety, and the same went for any money made from selling the products.

Romalpa's receivers argued that there was no provision made for the selling of the foil as is, but AIV asked the court to imply a clause that Romalpa was allowed to resell it, provided that all the proceeds went to AIV.

The case went to the Court of Appeal, which is the second highest court in the English Legal System and what should have happened was this: Judges, learned in commercial law should have been appointed. They should have looked carefully at the case. They should then have decided that in English law, a retention of title clause fails on a number of legal grounds, and on the fact that it is jumping the queue ahead of secured creditors who arguably have more of a right to the money. This decision would render future retention of title clauses void and everyone would be happy. Aside from the unsecured creditors like AIV.

Of course, that is not what happened

The judgement: Judges were appointed who were... perhaps slightly less clued up than they should have been. They looked at the facts and decided that there was an implied term allowing for Romalpa to sell off the aluminium provided the proceeds went to AIV and that therefore there was a fiduciary relationship between the two. What this means is that the retention of title clause – Clause 13, which had only been left in because of a bad translation job – succeeded! Not only that, but a fiduciary relationship is a relationship in which one party, in this case Romalpa, has to act in the best interests of the other party, in this case AIV. This is quite obviously not the case. Romalpa had sold off the aluminium at a low price in a vain attempt to keep the receivers from the door. If AIV had had a say, they naturally would have wanted to wait for a higher price. Despite this, the court still found for AIV.

Still, the UK doesn't have a tiered courts system for nothing, and Romalpa's receivers quite naturally asked for leave to appeal the case to the House of Lords, the highest court in the land, and the only one capable of overruling the Court of Appeal. Unfortunately, the judges believed the case was not of any real importance except to the parties involved and refused.

From that moment on, retention of title clauses were what everyone wanted.

Post Romalpa

Those of you with a penchant for history or economics may have noticed that Romalpa was decided at an interesting time for the British economy. The (then) socialist Labour Party was in power, busily messing around with concepts of nationalisation, the fuel crisis was only a few years past and the winter of discontent was looming. In 1979 Labour lost an election to a nearly unknown Tory, Margaret Thatcher. To cut a long story short, the Tories' actions over the next few years created an environment that was very good for big business, but rather risky for smaller ones (we won't talk about the effects on the workforce..) and this lead to a lot of insolvencies. Naturally this generated a lot of court-cases and therefore a lot of case-law. It wasn't too long before retention of title clauses were up before the judges again.

Re: Bond Worth [1980]2

Bond Worth was an extremely long case, more than eight hundred pages of affidavits and exhibits were filed and thirty-five days were spent in court, which, considering the usual length of a commercial case is only around two weeks, is an excessive amount of time.

The Facts: Bond Worth were a carpets company and had taken delivery of a consignment of fibres from another company, Monsanto. Both companies then went bust and called in the receivers who began battling over who owned the title to the fibres. Monsanto had included clause in its contract that stated:

"(a) Equitable and beneficial ownership shall remain with us the sellers until full payment has been received . or until prior resale, in which case our beneficial entitlement shall attach to the proceeds of resale or to the claim for such proceeds.
(b) Should the goods become constituents of or be converted into other products while subject to our equitable and beneficial ownership we shall have the equitable and beneficial ownership in such other products as if they were solely and simply the goods. ."

Translated out of legalese, this was affectively a Romalpa clause, although it had been refined from the original Dutch translation. Monsanto's receivers therefore claimed that they owned the fibres and the carpets they had been spun into, Bond Worth claimed the opposite. The case went to the High Court.

The High Court in the English and Welsh legal system is the court directly below the Court of Appeal, it is therefore in theory bound by its judgements, however, as has previously been noted, Romalpa was poorly decided, and the eminent and intelligent Slade J, realised this. He adopted a very legalistic, but very clever approach to the problem:

The Judgement: Under English and Welsh law, there exist what are known as "charges." A charge is a form of security held over property that allows the holder to sell the property under certain conditions. In order to be valid however, charges have to be registered, if they are not, they are void and unenforceable. Slade J noted that the Romalpa clause that Monsanto sought to rely on could be considered a charge and that therefore, as it was unregistered, it could not be legally enforced, rendering the clause useless.

So, according to the judgement of Slade J retention of title clauses are inherently invalid.


It would have been nice if this was the end of it, and in a way, it should have been. Slade J's interpretation of the law is concise and clever. Yes, in theory companies could register their Romalpa clauses as charges and have them enforced, but they would be moved a long way down the receiver's list, far below the point where they would be likely to actually receive any of their money. Unfortunately, there was a problem. Justice Slade was only presiding over the High Court, and the High Court does not have the right to overturn or ignore a judgement of the Court of Appeal. Although the decision was not appealed, when the case next came before a judge, the question would be raised: which judgement should be followed?

Clough Mill Lrd v Geoffrey Martin [1984]3

This case is the reason why the retention of title clauses still exist in English and Welsh law. Although the reasoning of the judges does make a certain amount of sense, it is clearly a botched job. Nevertheless, you have to work with what you've got.

The Facts: Once again there are two companies, once again they contracted with each other, once again one of them went bust and once again the other one attempted to rely on a retention of title clause. The court of first instance followed Bond Worth and held that the clause constituted an unregistered charge and was therefore unenforceable. This was objected to, and the case went to the Court of Appeal, which now had the unenviable task of deciding whether to follow its own judgement or the rather better judgement of the lower court.

There is a mechanism in English Law that will allow two different judgements on apparently similar facts to coexist, it is known as distinguishing. Usually used when a higher court does not want to be bound by its own decision, the judges, often urged by the barristers, will seek to find some little difference between the two cases and blow it out of proportion, allowing them to claim that this very specific fact ultimately lead to the different judgements. The Court of Appeal therefore scoured Romalpa and Bond Worth looking for this difference. They found it.

The Judgement: The Court looked at the two clauses relied upon in Romalpa and Bond Worth and noted a very specific difference between them: The Bond Worth clause refers to the "equitable ownership"4 of the goods, the Romalpa, clause does not. The reason for this is that the concept of equitable ownership does not exist outside of systems that derive from the English and Welsh common-law, and therefore, a translated Dutch contract would not be expected to mention it. Leaping on this fact, the court judged that an equitable charge could not be created in the absence of equitable ownership, and that therefore, clauses that do not mention equity are in fact valid and enforceable.


Due the peculiarities of the English and Welsh Legal System, retention of title clauses remain a technically legal means of jumping the receiver's queue. However, they have to be executed perfectly, and there are many more technical reasons for them failing that are beyond the scope of this writeup. Today courts are almost universally opposed to their use, and therefore companies will pay large sums of money to ensure that they are drafted perfectly, so that there is no way for the judges to get around them. In many ways it would be easier if they were simply legislated against, but no doubt that would generate its own problems. In all, they are an interesting quirk the commercial law, and probably, when it comes down to it, mostly useful as a way for commercial lawyers to pay for their BMWs.

References and Notes

1 1 WLR 676, 2 All ER 552
2 Ch 228
3 3 All ER
4Equitable ownership is distinct from legal ownership – effectively, the equitable owner is the one who derives the benefit from the property, the legal owner has the legal rights and responsibilities over it.


Bradgate, R Commercial Law (3rd Edition Oxford University Press 2003)
Lectures of Dr. Jonathan Fitchen Lecturer in law, University of Wales, Abersytwyth.

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