Consultation to update Victorian-era transfer of ownership rules

• Consultation on draft legislation that would reform and simplify Victorian-era rules on when consumers acquire ownership of goods under sales contracts
• This would clarify rules used when consumers have ordered goods online or where a retailer goes insolvent before the consumer has received the goods

The Law Commission has today [27 July 2020] launched a consultation on draft legislation to reform Victorian-era rules which still apply to consumers today. The reforms would modernise and simplify the rules on when consumers acquire ownership of goods, including where they have ordered goods online or where a retailer goes insolvent before they have received the goods.

Consumers often pay for goods in advance of receiving them, for example whenever consumers buy goods online. It can also happen when consumers pay for products in a physical store, but the product is left with the retailer to be altered, or has to be ordered by the retailer. However, If the retailer goes insolvent before the goods are delivered, a consumer can be left wondering: “can I still get the goods I ordered”?

The answer depends on whether ownership of those goods has transferred to the consumer. This is currently determined by complex, technical and outdated rules which have remained largely unchanged since the late 19^th century. Some of the terminology is old-fashioned and unclear and the rules were not designed with consumer transactions or internet shopping in mind. As a result, the rules can leave consumers confused and questioning why they cannot claim the goods they have ordered, and out of pocket if a retailer becomes insolvent after they have paid but before they receive the goods.

The draft legislation

The Law Commission’s draft legislation sets out in simple terms when ownership of the goods will transfer to the consumer. For most goods that are purchased online, ownership would transfer to the consumer when the retailer identifies the goods to fulfil the contract. This would occur when the goods are labelled, set aside, or altered to the consumer’s specification, among other circumstances.

If enacted, this change would bring the rules into the 21^st century, ensuring they are easier to follow so consumers understand what their rights of ownership are.

The importance of this work has only risen as internet sales increase over time and the impact of coronavirus on shopping habits is felt. Internet sales have grown steadily over the last few years, with a sharp increase in recent months amid the closure of non-essential retail outlets in response to coronavirus. The last few months have seen internet sales jump from 19.9% of all retail sales in January 2020 to 32.8% in May 2020.

The result of this upward trend in online shopping is that more and more consumers are paying for goods before receiving them. However, in recent years the number of retailer insolvencies has also been increasing. Last year saw the highest number of retailer insolvencies in five years and the Centre for Retail Research forecasts that store closures will increase by 25% in 2020 over 2019 levels.

Law Commissioner Sarah Green said:

“The current transfer of ownership rules are shrouded in complex language and lead to insolvency situations which consumers find difficult to understand.

“With the risk of retailer insolvencies increasing, we believe it is time for the rules to be modernised so that consumers have clarity on their rights of ownership, especially in an insolvency situation.”