The main purpose of retention of title ("ROT" or "RoT") clauses is to ensure that where goods are supplied on credit, if the buyer subsequently goes into bankruptcy, the seller can repossess the goods.
[1] Retention of title clauses are mandated in the European Union by Article 9 of the Late Payments Directive,[2] and sellers' ROT rights are recognized by Article 7 of the Insolvency Regulation.
[3] Especially prevalent in Germany,[4] these clauses are permitted in the United Kingdom by s.19 of the Sale of Goods Act 1979, which expanded upon the 1976 judgment of the Court of Appeal of England and Wales in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd.[5] In contrast to English law,[6] the common-law jurisdictions in Australia, Canada, New Zealand and the United States have instituted the concept of "security interest", under which ROT clauses may need to be registered in order to have effect:[7] Simple ROT clauses are generally effective in protecting sellers' interests in Hong Kong, but in some cases a clause would not be enforceable.
[11] Although title retention clauses are conceptually very simple, they have become increasingly widely drafted, which has resulted in the courts in a number of countries striking down the clauses, or recharacterising them as the grant of a security interest.
It has consequentially been noted that "the practical outcome of a series of later cases has put it beyond doubt that 'extended' title reservation clauses will not work.