Still Yours Until Paid For: Making Retention of Title Work in Practice

A trade customer enters administration on a Tuesday. By Wednesday afternoon the stock you delivered three weeks ago has been sold, moved to a sister site, or absorbed into a finished product. By Friday your invoice sits in a schedule of unsecured creditors alongside dozens of others, each recovering a few pence in the pound.

Retention of title — known in older case law as a Romalpa clause, after Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] — is the contractual device intended to prevent that outcome. It keeps ownership of the goods with the supplier until payment is made, turning you from an unsecured creditor into someone with a proprietary claim. It is a genuinely powerful tool. It is also routinely defeated by drafting that was never tested and by record-keeping that was never designed for the moment it matters.

What the clause actually does

The starting point is section 17 of the Sale of Goods Act 1979: property passes when the parties intend it to pass. Section 19 allows the seller to retain title until conditions are fulfilled. Nothing exotic is required — a simple clause saying that ownership of the goods remains with the seller until the price is paid in full is capable of being effective, as Clough Mill Ltd v Martin [1985] confirmed.

What the clause does not do is give you a right to be paid. It gives you a right to the goods, or to their traceable proceeds in limited circumstances. That distinction drives most of the practical difficulty. Goods that no longer exist cannot be reclaimed, and goods that cannot be identified cannot be separated from the buyer's general stock.

The questions an administrator will ask

When a claim is made, the office-holder's advisers will usually work through the same short sequence.

Was the clause part of the contract? Terms printed on the back of an invoice arrive too late in the formation of the contract to be incorporated in most cases. The clause needs to be in your quotation, your order acknowledgement, or your standard terms supplied and accepted before the contract is formed — and you need a record showing that the customer received them. A signature is ideal; a dated acknowledgement on an order portal is nearly as good; an unsigned PDF attached to an email nobody opened is weak.

Is the wording clear? Vague language about the goods remaining the seller's property until the buyer has discharged all obligations is workable, but ambiguity about which obligations, which goods, and which period invites argument.

Are the goods identifiable? This is where most claims die. If your timber has been cut, your resin has been melted into a composite, or your components have gone into a pallet of identical components, there is nothing left to claim. Borden (UK) Ltd v Scottish Timber Products Ltd [1981] is the cautionary example: once goods are incorporated into a new product, title to the original goods is gone. Modelboard Ltd v Outer Box Ltd [1993] applies similar reasoning to goods mixed beyond identification.

Did the clause create a registrable charge? This is the trap that catches suppliers who try to be too ambitious. A clause that gives the seller rights over goods that have been manufactured or mixed, or over the proceeds of resale, may operate as an equitable charge rather than a true retention of title — see Re Bond Worth Ltd [1980]. A charge created by a company must be registered at Companies House within 21 days of creation under section 859A of the Companies Act 2006. Registration is not automatic and the deadline is unforgiving. An unregistered charge is void against an administrator, liquidator or creditor. Many suppliers discover this at precisely the wrong moment.

The proceeds problem

Most supply agreements, whether expressly or by implication, permit the buyer to resell the goods in the ordinary course of business. That is the point of buying stock. Once resale happens, the goods are gone and the supplier is left arguing over the debt owed by the buyer's own customer.

Claims to proceeds can work — Romalpa itself turned on them — but they are much more likely to be characterised as a charge, and therefore much more likely to need registration. If your business model depends on following the money rather than the goods, budget for legal drafting and diary the registration deadline.

Practical steps worth taking this quarter

• Audit the point of incorporation. Read your own terms and trace backward to the moment each customer became contractually bound. If your terms only appear on invoices, change the workflow.
• Version-control your terms. Save a dated copy of every version and a record of which customers received which. This sounds like administration; it is evidence.
• Identify goods at dispatch. Batch numbers, serial numbers, pallet photographs and delivery notes with quantities and codes turn an assertion into a claim. A buyer's warehouse full of identical cartons is not a place where identification happens by memory.
• Separate simple from ambitious drafting. A clean retention of title clause over identifiable goods is usually enforceable without registration. All-monies and proceeds clauses need advice, because the drafting line between a proprietary right and a registrable charge is narrow.
• Keep a paper trail of any acknowledgement in which a customer accepts that goods remain your property.

When the news arrives

Speed matters, and so does the audience. Write to the administrator or liquidator in writing, promptly, marking the correspondence as a retention of title claim, identifying the goods and enclosing the contract trail. Copy in the customer's finance director and your own insurer if you hold trade credit cover. Do not simply telephone your usual sales contact, and do not assume the office-holder knows your goods exist.

If the goods can be identified and the clause holds, the office-holder must respect your proprietary interest. If they cannot, you join the unsecured creditors. Trade credit insurance, credit-limits on new accounts and staged deliveries are unglamorous protections, but they are the ones that pay out when the drafting argument goes the wrong way.

A retention of title clause is not a piece of boilerplate. It is a property right you either have or do not have, and the difference is usually decided months before the customer's difficulties become public.