Page1

Company Lawyer
1992

Case Comment

Romalpa is dead
Andrew Hicks
Subject: Insolvency. Other related subjects: Sale of goods
Keywords: Assignment; Book debts; Corporate insolvency; Passing of property; Priorities
Case: Compaq Computer Ltd v Abercorn Group Ltd (t/a Osiris) [1991] B.C.C. 484 (Ch D)
*Comp. Law. 217 The case of Compaq Computer Ltd v The Abercom Group Ltd 1 has driven one
more highly polished nail into the coffin of the Romalpa case.2 Romalpa drew attention to the efficacy
of retention of title in sale of goods, and in particular enabled a seller to claim rights to proceeds of
resale held by the buyer, such claim having priority over the buyer's liquidator.
Since then simple retention of title has prospered enabling a seller to recover identifiable and
unaltered goods prior to payment by the buyer of all sums due to the seller3 and even though the
purpose of retaining title is to ‘secure’ payment.4 On the other hand, claiming proceeds of resale, the
nub of the Romalpa case, has proved to be a damp squib.
A number of first-instance decisions have recently considered claims to proceeds of resale,
culminating in the Compaq Computer case, a decision which reviews a wide range of authorities with
exemplary clarity.
This line of cases indicates that there are primarily two issues that may face a seller seeking to make
a claim to proceeds of resale by the buyer. First, on the insolvency of the buyer company, its
liquidator or administrator will claim that the rights claimed by the seller constitute a charge and are
void against him. Secondly, it may have happened that the buyer, having allowed the creation of
rights over proceeds of resale, then assigned its book debts or trade invoices to a factoring company
in return for finance. A priority issue then arises between the original seller and the factoring
company.
A series of four first-instance cases culminating in Compaq Computer has given the seller short shrift
in his claim to proceeds. In E Pfeiffer Weinkellerei-Weineinkauf GmbH v Arbuthnot Factors Ltd, 5
Tatung (UK) Ltd v Galex Telesure Ltd 6 and Re Weldtech Equipment Ltd 7 the claim to proceeds of
resale was held to be void as an unregistered charge. In the Tatung case Phillips J commented that
he thought the seller's interest in Romalpa was also a charge, the case therefore being wrongly
decided. In the Pfeiffer case it was also concluded that as Arbuthnot Factors had been first to give
notice of assignment to the sub purchasers, Arbuthnot took priority over the unpaid seller under the
rule in Dearle v Hall. 8
These two issues have been neatly reviewed and encapsulated by Mummery J in the Compaq
Computer case. Taking what he called ‘the priority point’ first, the circumstances were as follows.
Compaq had sold computers subject to terms of sale claiming rights to proceeds of resale. The buyer
had later assigned all present and future invoices to a finance house. In due course the buyer went
into administrative receivership and the finance house gave notice of assignment to sub purchasers
who had not yet paid for the goods. A priority question therefore arose as between the unpaid seller
claiming under its terms of sale and the finance company under the later assignment of invoices.
A complex interplay of principles became relevant. First, equitable interests rank in order of time, a
principle favouring the seller. The finance house argued that this was easily displaced as, having
given notice to the sub purchasers, it was a bona fide purchaser for value of a legal interest without
notice of the seller's equitable rights. However, the court held that under s 136(1) of the Law of
Property Act 1925 such an assignment is subject to equities and is an exception to the bona fide
purchaser principle. In conclusion it was held that the rule in Dearle v Hall displaces the earlier
principles so that the assignee who is first to give notice to the debtors has priority over other
equitable claims.
 Page2

This gives little comfort to unpaid sellers as they are not in a position to give notice of assignment to
their buyer's buyer. However, it is suggested that claims to proceeds should be drafted as an
assignment of the buyer's right to recover proceeds of sale. If a buyer is about to fail, and so is no
longer of value as a customer, the seller should then give notice to the sub-purchasers and hope that
any factoring company has not yet given notice.
The result of these four cases is none the less that the unpaid seller may probably lose on the priority
point. Furthermore the seller will almost certainly lose on the charge issue. The three earlier cases
mentioned above involved retention clauses relatively loosely drafted. In the Compaq Computer case
the clause was in a form more comprehensively drafted than has previously been considered. The
buyer was to hold the goods as bailee and agent for the seller, to store them separately, to insure
them, to allow the seller to take them back on demand and resell them, and strictly to account to the
seller as agent or bailee for the proceeds of sale, such proceeds to be kept in a separate account.
Yet these rights were still held to be a charge. As in the previous case going back to the principle
established in Re Bond Worth, 9 it was held that if the unpaid seller's right to proceeds of sale is
limited to the amount that the buyer owes the seller and comes to an end when that debt is paid then
a charge is indicated.
However carefully a seller's draftsman dresses up the terms of sale as a fiduciary's obligation to
account, it is hard to avoid this fundamental flaw. In Pfeiffer *Comp. Law. 218 the seller's terms
specifically claimed proceeds of sale amounting only to the buyer's debt to them. Clearly this was a
charge. In Compaq Computer, however, the seller could repossess and resell the goods at any time,
and required the buyer to account for the full proceeds of resale. Yet despite the language of an
absolute right to proceeds, the court took it that the seller was not entitled to retain out of the
proceeds a sum more than sufficient to pay the unpaid price, which was a limited interest in proceeds
by way of security and not by way of a bare trust. So the lesson for the draftsman is that merely
saying that the seller's right to proceeds is unlimited does not necessarily avoid the implication of a
charge.
Although these are first-instance decisions, and the Romalpa case was head in the Court of Appeal,
the latter case has been distinguished on various grounds. For example, later courts have been
construing different agreements, or Romalpa has been said to have special features such as counsel
for the buyer's concession that his client owed fiduciary obligations to the seller. And finally there is
the cock-up theory that Romalpa was simply wrong and is now dead and buried.
In conclusion therefore, retention of title is an unassailable device where the goods sold can be
identified and recovered. Claims to proceeds of resale, however, are extremely speculative. No doubt
sellers will still claim proceeds of sale but such claims seem doomed to be construed as charges or to
be vulnerable to factoring companies obtaining priority over them. In the absence of any unexpected
intervention by the Court of Appeal this aspect of the process of drafting terms of sale will be more in
the realms of alchemy than science and the resulting small print may not be worth the paper that it is
written on.
Andrew Hicks Lecturer in Law, University of Exeter
Comp. Law. 1992, 13(11), 217-218

1. [1991] BCC 484.

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

3. Armour v Thyssen Edelstahlwerke AG [1990] 3 All ER 481.

4. Clough Mills Ltd v Martin [1984] 3 All ER 982.

5. [1987] BCLC 522.

6. (1989) 5 BCC 325.

7. [1991] BCC 16.

8. (1828) 3 Russ 1, [1824-34] All ER Rep 28.

 Page3

9. [1980] Ch 228.

© 2018 Sweet & Maxwell and its Contributors