Retention of title (ROT) clauses or
"Romalpa"1 clauses have become commonplace in
contracts for the supply of goods.
ROT clauses provide that the property in goods sold does not
pass until the buyer has paid the price for those goods. For
example, a successful ROT clause will mean that the buyer of goods
does not necessarily own the products until it has paid for them,
even if he holds possession of the product.
The purpose of such clauses is to protect the unpaid seller from
the insolvency of the buyer and defeat the claims of other
creditors who hold registered charges over the buyer's
A simple ROT clause retains ownership of goods in the seller
until payment is made for those particular goods. By careful
wording, the protection afford by a ROT clause can be extended to
address the following circumstances:
To operate as an "all monies" clause, by
which title will not pass to any goods supplied by the seller to
the buyer until all goods (over various transactions between the
parties) have been paid for in full by the buyer;
Where the buyer resells goods to a sub purchaser, a ROT clause
may require that proceeds of such resale actually received from the
sub purchaser by the buyer are held by the buyer on trust for the
Where the buyer uses goods subject to a ROT clause in producing
a further product, the buyer may be required to hold a portion of
the proceeds received 5 Industrie Basten B.B. v Romalpa
Limited is the case with which the term Romalpa clause
originated. from the sale of the further product (equal to the
amount owing for the goods sold by the original seller) on trust
for the seller.
A simple ROT clause is ineffective to retain title in instances
when identification of goods held by a buyer is not possible. For
example, where a farmer delivers wheat to a silo, and it therefore
becomes impossible to separate the seller's wheat from other
wheat already in the silo, a ROT clause would be ineffective to
retain title for the seller.
The High Court decision of Associated Alloys Pty Ltd v
Metropolitan Engineering & Fabrication Pty Ltd
2, however, established that an appropriately
worded ROT clause, even if a seller's goods cannot be
identified, could be effective to establish a trust for proceeds of
a further sale, if these proceeds could be identified. Although the
clause in Associated Alloys was effective, ultimately the
seller could not establish a claim as the proceeds could not be
By analogy to the decision in Associated Alloys, it is
also possible that an appropriately worded ROT clause may extend to
apply to goods which have been used and incorporated in another
There continues to be some confusion surrounding the
effectiveness of ROT clauses in cases where goods are not
This confusion has been settled to some extent by the recent
legislative introduction of Section 20A of the Sale of Goods
Act 1895. The amendment brings South Australia into line with
other states across Australia.
Sellers who deposit goods in a bulk store are considered owners
in common of the bulk, subject to an agreement to the contrary.
Again, using the grain example, sellers will now be considered
proportionate owners of the bulk goods stored in the silo,
notwithstanding that each 6  HCA 25. seller cannot identify
their individual goods within the silo.
The Act only affects "bulk goods" and does not apply
to all goods. Part payment for goods is taken to be payment for a
corresponding part of the goods, but Section 20A does not specify
that the buyer must pay "in full" for the goods that form
part of the bulk.
It is clear that the legislative amendments are trying to find a
common ground between buyers and sellers. In the current economic
climate, it is important for suppliers to ensure that their ROT
clause offers the maximum protection available. We can assist by
reviewing your terms of trade and updating them as necessary.
1 Industrie Basten B.B. v Romalpa Limited is the case
with which the term Romalpa clause originated.
2  HCA 25.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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