Problem: Last year my carpentry company carried out some work for a shop fitting company. All of the work was completed in October 2012 at which point I issued my invoice for just over £23,000. However, to date I have received approximately £10,000, and the shop fitting company does not seem too willing to pay the rest! I have since found out that other sub-contractors are also having a problem in getting paid.
The actual shop where the work was done has told me that it has paid the shop fitting company. I told the shop that under my company’s terms and conditions, we still owe the goods that we provided as part of our contract until they have been paid for in full, and I threatened that we would remove them. I then received a letter from the shop’s solicitors telling me that if I attempted to remove the goods they will claim against us.
What can I do? Are the goods that my company supplied still my company’s goods until paid for or, as it seems, is it just a pointless thing to include in our terms?
Thomas, Ashby.
Response: Hello Thomas. The term that you are attempting to rely upon to remove ‘your’ goods is called retention of title. A ROT clause is also referred to as a Romalpa clause, which is the reference to the court case of Aluminium Industrie Vaassen B.V. v. Romalpa Aluminium [1976]. The case was an important decision as it introduced the concept of ‘extended reservation of title’ into English law, and although the past few decades has seen an attrition of the principles laid down, it nevertheless continues to have far reaching effects in commercial law.
In construction and engineering contracts, there are many different parties involved and the goods could have passed to many buyers before the original seller encounters a problem. It can be a difficult task to decide who actually owns the goods, and ownership will often pass at quite an early stage – and before goods are paid for. Unless otherwise stated in the contract, for the sale of goods title passes from the seller to the purchaser when the parties intend it to pass (section 17 Sale of Goods Act 1979), which is normally upon delivery. Many construction contracts will be for the supply of labour and materials and hence, will be governed by the Supply of Goods and Services Act 1982, under which title again passes when the parties intend it to pass.
A ROT clause will only ‘bite’ providing it is written into the contract. A seller cannot reclaim its goods simply because it has not received payment, even if the goods have not been sold-on or used. Subject to certain criteria being met, the courts will uphold a valid ROT clause providing it can be demonstrated that an agreement has been properly made between the seller and purchaser.
There are many types of ROT clauses including: a) simple or reservation of title clauses; b) debt clauses; c) charge clauses; and d) mixed or processed clauses.
Simple or reservation of title clauses aim to preserve the seller’s title to the unpaid goods, but it is imperative for the seller to have a unique identification mark on the goods. With a debt clause / all monies clause there is no need for the seller to identify the goods, as it remains the owner of the goods if any debt owed to it by the purchaser is unpaid.
However, the effectiveness of a ROT clause will often depend on what the buyer has done with the goods. If, for example, annexation has taken place the materials will become the property of the land owner, regardless of whether it has paid for the goods and the supplier cannot remove the materials.
I am unaware of the wording of your clause and hence it is vital that you engage the services of a lawyer that is competent in commercial law who can consider the facts of your case including the wording in the contract and the effect thereof.
That said, my recommendation is that you should be focussing your efforts to secure the monies against the shop fitting company and refer the matter to adjudication. This will not affect any claim you may have for the unpaid goods.
© Michael P. Gerard MSc, PGDipLaw, PGDipBar, FCIOB, MCIArb, MAE
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.
Author background
Michael is a Barrister, Chartered Builder, Registered Adjudicator & Accredited Expert in quantum and planning matters. He is Managing Director of Michael Gerard & Co www.michael-gerard.co.uk, a company of chartered building consultants and quantity surveyors who provide a specialised service in the areas of construction law, quantum, programming, business recovery and insolvency support to the construction industry. Michael is also a consultant with Silver Shemmings LLP, a London practice of solicitors specialising in construction.