Examining the Application and Efficacy of Retention of Title Clause in the Protection of Small Businesses

Abstract

Retention of title clause is a potential legal device to ensure that small businesses that supply goods on credit sales to companies are not deprived of payment of purchase price of the goods if such companies become insolvent or liquidated. It is able to provide suppliers with super-priority in the payment of the purchase price from the companies’ assets over secured creditors. The validity and enforceability of retention of title clause was first endorsed and upheld in the case of Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd. However, subsequent case law has given rise to interpretational complexities and uncertainties which appear to eclipse its original objective and commercial benefits: contentious issues such as whether it constitutes the creation of a charge by the debtor company in favour of the creditor supplier, or whether it implicates agency, bailment or a fiduciary relationship that justifies the equitable doctrine of tracing. This article meanders through the ‘‘maze if not minefield’’ of the case law on retention of title clause, and determines how it can be made efficacious in application towards the protection of small businesses.

Keywords: Retention of title clause, Romalpa clause, Sale of Goods Act, Contract of sale, Property in goods, Passing of title, Fiduciary relationship

DOI: 10.7176/JAAS/78-03

Publication date:March 31^st 2022