Contracts for the sale and purchase of goods involve the transfer of ownership of those goods to the buyer. Normally this transfer would be assumed to occur when the goods were delivered to the buyer. However, it is not uncommon for sellers to seek to protect themselves against nonpayment of the price by providing for ownership (i.e. title) to transfer only when payment of the price takes place.

Such retention of title (“ROT”) provisions provide an apparently simple way for the seller to secure its position against the insolvency or nonpayment on the part of the buyer. The retaining of ownership is the continuation of an existing right and is not the creation of a new security right over the goods such as a legal charge1 that would have to be registered2.

Superficially such ROT provisions might appear attractive as indeed may be the case with goods that are to be retained by the buyer and used in their original form e.g. capital equipment. However, the position is not so simple where the goods sold subject to a ROT are expected to be the subject of consumption or resale by the buyer before the buyer has paid the seller and thus before ownership has transferred. Recent cases in the English courts have highlighted problems in this area as discussed below.

The legal issue

The problem turns on the tension between the retention of title on the one hand and the right to claim the price which is dependent on the transfer of title on the other. If goods sold under ROT terms have been sold on to third parties or otherwise consumed or used by the buyer before payment of the price then can there be a transfer of title? And if there is no transfer of title to the buyer can the seller have a claim on that buyer for the price?


Recent legal history of ROT under English law stems from the seminal decision in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd3. That case concerned a sale of aluminium foil to buyers that became insolvent prior to the payment of the price. The Court of Appeal upheld an ROT to find that title to the aluminium foil remained with the sellers and further that the sellers were entitled to the proceeds of sale by the buyers of finished products made from the aluminium foil. ROT clauses are still sometimes called Romalpa clauses in recognition of this case.

At the present time basic ROT clauses will either be a “simple” clause ( reserving title to a particular consignment until the price for that particular consignment of goods is paid) or an “all moneys” clause (where title to all goods supplied is retained until all debts owed to seller are discharged). However, drafters of ROT clauses have also attempted to extend the ROT by adding the following further provisions:

(a) a “tracing” clause which lays claim to resale proceeds4:
(b) a “mixing” or “aggregation” clause which lays claim to title to the mixed or manufactured product to which the goods supplied have been added;
(c) a “following” or “extended” clause, which purports to extend the claim to title to the goods (or their product) in third party (sub-buyer) hands.
These attempts to extend the basic ROT have had only limited success.

Seller’s claim to be paid the price

The primary purpose of the ROT is to secure payment of the price. The sale of goods under English law is covered by section 2 of the Sale of Goods Act 1979 which defines a contract of sale of goods as

“…a contract by which the seller transfers or agrees to transfer the property (i.e. ownership) in goods to the buyer for a money consideration, called the price”.

Section 49 of the Sale of Goods Act 1979 gives a right to claim the price:

(1) where title to the goods has passed to the buyer, or

(2) where, under a contract of sale, the price is payable on a day certain irrespective of delivery. This even if the title to the goods has not passed and the goods have not been appropriated to the contract.

Any seller seeking to claim the price will have to show either that title to the goods has passed to the buyer or that under the terms of the contract the price is payable “on a day certain”. Where goods subject to ROT has been sold on to third parties or used by the buyer it may be open to question whether there has been a passing of title to the buyer that satisfies the former requirement.

This issue has come up in two recent cases covering respectively onward sale and consumption of the goods.

1. ROT where onward sale of the goods to a third partyCaterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd5

In this case Caterpillar (NI) Ltd sold generators to John Holt & Co (Liverpool) Ltd. The contract contained a ROT clause that stated,

“… title shall not pass to Buyer until Seller has received payment in full for the products … . Until such time as title passes, Buyer shall hold the products as Seller’s fiduciary agent. …. Prior to title passing Buyer shall be entitled to resell or use the products in the ordinary course of business and shall account to the Seller for the proceeds of Sale”.
Holt Liverpool sold the generators to its Nigerian subsidiary before it had paid Caterpillar and thus before title to the generators had passed to Holt Liverpool.

The Court of Appeal held that title had not passed to Holt Liverpool and accordingly Caterpillar could not claim the price from Holt Liverpool under section 49 of the Sale of Goods Act. It also confirmed that a claim for the price could not be made other than under section 49 of the Sale of Goods Act.

A majority of the Court of Appeal concluded that prior to title passing Holt Liverpool was acting as agent for Caterpillar and had to account to it for the proceeds of sale to any third party. On that basis, Caterpillar should seek an account of the entire proceeds of the sub sale paid by the Nigerian subsidiary.

In passing the Court dismissed the idea that Caterpillar might have a claim for damages against Holt Liverpool because there was a logical difficulty in saying that Holt Liverpool were in breach of contract in failing to pay the price if the price is itself was not due because property in the goods had never passed to them.

2. ROT where goods are used or consumedPST Energy 7 Shipping LLC v OW Bunker Malta Ltd6 (the “RES COGITANS”)

The second case concerned the sale and consumption of ship’s bunkers (fuel oil) subject to a ROT clause. It arose out of the insolvency of OW Bunkers who were major global suppliers of bunkers. The issues are relevant not only to the supply of fuel but also to the supply of ingredients or components used in the manufacture of a finished product.

The judge stated that the case:

“…involves the supply of bunkers to a vessel on terms which are typical of hundreds or even thousands of such transactions carried out every year. These include a chain of contracts each with a retention of title clause in favour of the supplier, a provision that payment will be due a fixed number of days after delivery, permission for the shipowner to consume the bunkers in the meanwhile as the vessel goes about its business, and awareness on the part of all concerned that the bunkers may well be wholly consumed before payment becomes due.”
The issue was whether the sellers OW Bunkers could sue for the price under section 49 of the Sale of Goods Act 1979 if by the time payment became due, some or all of the bunkers would have been consumed with the result that any title to them had ceased to exist and could not be transferred to the buyers PST.

It was common ground that the effect of consumption of the bunkers was to extinguish any property in them. The court followed an earlier decision7 in recognising that it is not possible to own something which does not exist.

Could there be an implied term in the contract to the effect that title to the bunkers notionally passed to the buyers at the moment of consumption? The court rejected this as being in conflict with the express ROT term that title would not pass until payment of the price.

The court concluded that the nature of the deal between the parties was that the sellers would deliver or arrange for delivery of the bunkers which the buyers would be immediately entitled to use for the propulsion of the vessel. Whilst such an agreement resembled in some respects a contract of sale, its terms and their performance did not to any extent rely on property or title or their transfer and accordingly it was a not a contract of sale governed by the Sale of Goods Act.


It is not uncommon for buyers to argue against the inclusion of ROT clauses on the grounds that the intended use of the goods onward sale or consumption e.g. as raw materials in the manufacture of finished goods. Following negotiations a typical compromise is to qualify the ROT to include wording that permits such consumption or resale.

These latest decisions reinforce the need to give careful consideration to any such ROT wording to avoid unintended consequences. The following are points for consideration:

  • The underlying purpose of a ROT is to secure payment of the price. A seller should be aware that blind insistence on an ROT may, as in these recent cases, actually operate to frustrate this purpose.
  • It is likely to be the intention of both buyer and seller that any contract for the sale of goods be a contract of sale governed by the Sale of Goods Act 1979. If so then the contract will need to be structured to provide for a transfer of title and for there to be a right to claim the price falling within either section 49(1) or (2) as detailed above.
  • One possibility may be the inclusion of express provision for the passing of title to the goods to the buyer immediately on consumption or upon onward sale to a third party thereby satisfying section 49(1) of the Sale of Goods Act 1979.
  • An alternative might be to provide for payment of the price on a “day certain” regardless of delivery as provided for in section 49(2) of the Sale of Goods Act 1979. Provision for payment to be made within a fixed period after delivery may be sufficient to satisfy this requirement8.
  • Any reference to the buyer acting as agent may need to be treated with care. A buyer should be wary of any wording that suggests that it is acting as the agent of the seller in making any onward sales of the goods to third parties.
  • If the parties wish to have a deal that by its nature may fall outside the Sale of Goods Act (as in PST Energy v OW Bunkers) then it may be best to recognise this and spell out precisely the nature of the deal and detail when the price or other consideration is due for payment. It should be noted that if the various provisions in the Sale of Goods Act do not apply then these may need to be covered expressly in the contract.

It is possible that either or both of these recent decisions may be the subject of further appeal and thus there may be further developments in this area.

1 Contrast with the position under Article 9 of the Uniform Commercial Code applicable in the USA.

2 Companies Act 2008

3 Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676

4 Upheld in Romalpa

5 Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd [2013] EWCA Civ 1232.

6 (1) PST Energy 7 Shipping LLC (2) Product Shipping and Trading S.A. v (1) OW Bunker Malta Ltd (2) ING Bank N.V. [2015] EWHC 2022 (Comm)

7 Borden (UK) Ltd v Scottish Timber Products Ltd [1981] 1 Ch 25

8 See PST Energy 7 Shipping LLC (2) Product Shipping and Trading S.A. v (1) OW Bunker Malta Ltd (2) ING Bank N.V. at paragraph 73

Categories: Contract

Anthony de Winton

Anthony is a consultant for Pitman. He gained a wide breadth of international legal experience in house with Kraft Foods. This experience included responsibility for the Middle East & Africa region and latterly providing legal support to the international supply chain and procurement organisation.


Leave a Reply