TheRomalpaCase: Signpost or Diversion?

The supply of goods on recognition is a commercial platitude. Foreseeable troubles will nevertheless originate where the purchaser withholds payment or, more earnestly, is unable to do payment due to solvency troubles. The trouble when a company is forced into settlement or an single into bankruptcy was summarised by Templeman LJ [ 1 ] :

“…unsecured creditors rank after discriminatory creditors, mortgage holders and the holders of natation charges and they receive a natural deal.”

It is hence prudent for Sellerss to infix into the footings of their contract a keeping of rubric clause whereby ownership of the goods remains vested in the marketer until payment. This seemingly noncontroversial proposition was lent a alone turn inAluminium Industrie Vaassen BV V Romalpa Aluminium Ltd[ 2 ] in which the Court of Appeal was required to see a state of affairs in which goods were supplied and used or resold anterior to payment.

InRomalpaa Dutch Company supplied a measures of aluminum foil to and English company pursuant to a contract which provided that the foil would stay the belongings of the former until all debts collectible by the latter were discharged. The contract expressly provided for the assignment of rights to payment in the state of affairs in which merchandises were manufactured from the foil and sold but did non expressly cover with the state of affairs in which the foil itself was merely sold on. When this occurred and the English company went into settlement, the marketer of the foil attempted to retrieve monies paid in regard of the foil to the Receiver. It was held that the parties must hold intended there to be a right to sell on the foil and that a fiducial relationship was thereby created as a consequence of which the Dutch company was entitled to the returns of sale. Therefore the usage of reserves leting the marketer to retrieve the returns of sale of goods or the value of merchandises manufactured from them became widespread and known eponymously as “RomalpaClauses” . Criticism of such contractual devices has been advanced by observers such as Bradgate [ 3 ] :

“The widespread usage of keeping of rubric clauses has potentially serious effects for secured creditors: a successful claim under a keeping of rubric clause allows the provider to repossess the goods, their returns or merchandise, and the pool of assets available to run into the claims of other creditors is thereby diminished.”

However, of greater concern to providers and their Bankss is the fact thatRomalpaappears non to hold been regarded by the Court of Appeal as a peculiarly important determination ( leave to appeal to the House of Lords was refused ) and subsequent instances have been left to turn on their peculiar facts. Therefore inRe Bond Worth Ltd[ 4 ] , it was held by Slade J that the reserve of rubric clause gave rise to a charge instead than keeping of tile in the goods. However, inClough Mill Ltd V Geoffrey Martin[ 5 ] a consideration of the peculiar clause used led the Court of Appeal to the decision that the contract prevented belongings from go throughing so there was nil to charge.

Further troubles arise as a consequence of the nature of the fabrication procedure. Where the character of the goods has been altered ( see, for illustration,Model Board Limited V Outerbox Ltd[ 6 ] where composition board was printed upon and made up into boxes ) andBorden ( UK ) Ltd v Scottish Timber Products Ltd[ 7 ] in which rosin was used in the industry of hardboard ) . In such cases the tribunals appear to hold been defeated by the trouble of quantifying the nature and extent of the original seller’s involvement in the new merchandise. A solution to this might be to let the cogency of express commissariats rendering the new merchandise the belongings of the original provider until payment. However, since the value of the new merchandise will doubtless transcend the value of the supplied natural stuffs which contributed merely in portion to its industry, keeping of rubric in the whole of the new goods would be unjust if non impracticable in any event.

Therefore the current province of the jurisprudence is unsatisfactory for two chief grounds: despite the seemingly important position of the determination which has since 1976 Lent its name to keeping of rubric clauses,Romalpafailed to provide a expression upon which providers could trust with assurance in order to protect their involvements ; as a consequence, instances continue to turn upon their single facts taking Staughton J inHendy Lennox Ltd V Graham Puttick Engines Ltd[ 8 ] to depict this country of jurisprudence as “a labyrinth if non a minefield” . It might be supposed that this province of personal businesss could be remedied by statute law supplying exactly for the rights of Sellerss who purport to protect themselves in this manner. However, whether the solution therefore opted for provided security by manner of a charge or some comparable redress or reinforced the construct of sweeping keeping of rubric in goods, the troubles of quantification and supplying a redress which was just to both marketer and buyer would stay in all but the most straightforward of instances.

It is submitted that the reply lies in the a mechanism for the enrollment of involvements as suggested by both the English [ 9 ] and so the Irish [ 10 ] Law Commissions. A system of enrollment of involvements would let transparence ( peculiarly for the benefit of creditors ) as to the precedences which would use in the event of insolvency. Thus keeping of rubric clauses could be registered at Companies’ House or a similar establishment. Any clause non so registered would be void in the event of the winding-up or bankruptcy of the purchaser but where there was valid enrollment, the involvement would take precedence over involvements in the goods created later to the day of the month of enrollment. Such a reform would help both Sellerss and their Bankss by supplying a clear and readily enforceable agencies of retrieving the value of belongings sold on status that rubric does non go through until payment.

Bibliography

Bradgate, R. ,Commercial Law, ( 3rdEd. 2003 )

Oughton, D. & A ; Lowry, J. ,Textbook on Consumer Law, ( 2neodymiumEd. , 2000 )

Treitel, G. ,The Law of Contract, ( 11ThursdayEd. , 2003 )

Law Commission, Consultation Paper No.164,Registration of Security Interests: Company Charges and Property Other than Land, ( July 2002 )

Law Reform Commission ( Ireland ) , Report LRC 28 of 1989,Report on Debt Collection: ( 2 ) Retention of Title

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