What is the “Romalpa Clause” and how is it very relevant in Construction Law under the Common Law Legal System.
In 1976, a landmark award was created in the case of Aluminium Industries Vaasseh BV Vs Romalpa Aluminium(1976, 2 All ER 552). The Ratio Decidendi made in that case became known as the “Romalpa Clause”.
Kindly take note that whenever a landmark case is made, it is a common practice in the legal circle to name the decision made in the name of the defendant or plaintiff (as the case maybe). The Romalpa Clause is also commonly referred to as the “Retention of Title” Clause.
The Ratio Decidendi in the above landmark case was made by adopting the legal maxim of “No one can transfer a better title than he has himself” which in layman term means no one can give away any property that they do not have.
As a side resource, readers are to take note and be aware that under the Common Law legal system, legal maxims can only become a source of law reference only through the operation pf Stare Decisis. Until that happens, legal maxims do not have the full effect of law.
In a nutshell, the “Romalpa Clause” which became a common law principle in UK thereafter held that the seller would retain the ownership of the goods until he is paid in full, but the buyer is allowed to take delivery of the goods. If the buyer fails to pay, the seller can take repossession of the goods even if the buyer has sold the goods to a third party.
Let look at a typical scenario that is currently prevalent in the construction industry.
Most standard forms of construction contracts nowadays have a “Unfixed Materials and Goods” Clause whereby it is clearly stated that that if the Employer has paid for the value of the unfixed materials and goods on site through the progress payments, such goods and materials become the property of the Employer.
As such, in the event of termination, the contractor will not be allowed to remove or take such materials and goods from site, the rationale being that payment has been made for such materials and goods by the Employer.
So what happens when it is uncovered that the contractor has not paid the supplier of the materials and goods ?
The answer is by virtue of the ”Romalpa Clause” created in the case mentioned above. Case Law takes precedence over that of Private Law which in this case is the above mentioned provision in the contract relating to the ownership of materials and goods on site. The supplier can easily repossess the unfixed material and good on sitefor which he has not been paid even thoiugh the contractor has received payment from the employer. The legal basis is the Romalpa Clause which simply mean no one can give away what they do not have.
Kindly take note that the above is in line with my musings Week No: 6A where I talked about the “Sources of Law” and their hierarchy in enforceability. Case law will trump over Private Law every time.
For additional reference, readers in Malaysia are to take note that the “Romalpa Clause” has been adopted as case law in the case of Lim Chui Lai Vs Zeno Ltd [1964, 30 MLJ 340.]
I am sure other common law countries would have done so as well and similarly adopted such an important landmark law concept as their source of law through some local case law making it trite law under their respective jurisdiction.
This musing is in two parts:
Part 1 : What is the “Romalpa Clause” and its impact on Construction Law
Part 2 : The Contractual Solution/s available and how to go around and defeat it. For those of you who cannot wait, send me an email to lhchin@gmail.com and I will send you a copy when it is ready.
Keep a look out for it as the Solution/s will be posted shortly.
Orbiter
The above is a very good example of the uniqueness of the Common Law legal system. Now and then a landmark case will come create an entirely new solution or remedy to what is a conundrum at law. Off hand I can think of two more such development as :-