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Reforms to the transfer of ownership rules: Consultation by Law Commission

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

30-10-2020

The Law Commission has recently published a consultation on a draft bill to reform the rules contained in the Sale of Goods Act 1979 regarding transfer of ownership of goods.

The rules regarding transfer of ownership of goods are substantially the same as those in the original Sale of Goods Act 1893. However, the way that consumers purchase goods has changed considerably since 1893, with roughly 33% of retail purchases being made online. The COVID-19 emergency will have increased this figure further. The proposed new rules will be added to the Consumer Rights Act 2015 and seek to increase consumer protection, reflect a change in buying patterns and clarify the old-fashioned and ambiguous terminology in the current rules.

The current rules

Different rules apply for “specific goods” and “unascertained or future goods”.

For “specific goods”, ownership is transferred when the parties intend it to pass. Unless a different intention exists, goods must be in a “deliverable state”.

For “unascertained or future goods”, ownership is transferred when the goods are “ascertained”. Once the goods are ‘ascertained’, ownership is transferred when the parties intend it to pass. Unless a different intention exists, like specific goods, goods must be in a “deliverable state”. The goods must also be “unconditionally appropriated”.

Practical difficulties with the current rules

The meaning of “deliverable state”, “ascertainment” and ‘‘unconditional appropriation’’ is inherently unclear.

With a large proportion of retail purchases being made online, consumers will usually pay for goods in advance of receiving them. If a retailer goes insolvent after payment but before the consumer receives the goods, interpreting the current rules will be down to the insolvency practitioner and leads to difficulties in determining who owns the goods. If ownership has not transferred, a consumer will be an unsecured creditor and it is unlikely they will get their money back. If the goods were paid for on a credit card or another form of point of sale finance, the consumer may have recourse by way of a claim under section 75 of the Consumer Credit Act 1974 against the creditor.

The proposed new rules

“Specific goods” and “unascertained or future goods” will be replaced with “goods identified and agreed on” and “goods not identified and agreed on”. For “goods identified and agreed on”, ownership will transfer when the contract is entered into. For “goods not identified and agreed on”, the new rules set out specific examples of when ownership will transfer, for example, the goods are delivered to the consumer or labelled with the consumer’s name.

The current rules can be varied if the parties have specifically agreed otherwise, but the new rules will be mandatory and cannot be varied by contract.

Practical implications and relevance to Section 75 claims

It would appear that the new rules will have very limited impact in a non-insolvency situation. However, the greatest risk to creditors of large-scale section 75 claims is typically where there are merchant insolvency issues.

In an insolvency situation, the new rules will provide much clearer guidance and clarity on when ownership will pass where goods have been paid for in advance. In some cases, ownership will pass much sooner to the consumer and an insolvency practitioner is more likely to hand over goods which would not otherwise have been handed over.

In turn, this may lead to a reduction in claims being pursued by consumers against creditors under section 75 for breach of contract where goods have been paid for but ownership has not transferred.

However, creditors might begin to see claims for the costs of the consumer taking possession of goods, for example, additional storage and delivery costs, where ownership has transferred but the goods are not yet in the possession of the consumer.

The consultation closes on 31 October 2020 and we will provide a further update when it is clear if the draft bill will be implemented and the Consumer Rights Act amended.

If you have any queries relating to the draft bill or any other section 75 issue, please do contact:

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