Draft Bill for transfer of ownership rules published by Law Commission

The Law Commission has today published a draft Bill that would introduce new rules into the Consumer Rights Act 2015 about the transfer of ownership under contracts for the sale of goods between a trader and a consumer.

Consumers often pay for goods in advance of receiving them. This happens whenever consumers buy goods online. It can also happen when consumers pay for goods in a physical store, but the goods have to be made to the consumer’s order, are not available to be taken away there and then or are left with the retailer to be altered. But as that transaction is happening, who actually owns the goods? And in particular, who owns them If the retailer goes insolvent before the goods are delivered to the consumer?

The answers to these questions are currently determined by complex and technical rules which have remained largely unchanged since the late 19th century. Some of the terminology is old-fashioned and unclear, and the rules were not designed with consumer transactions or internet shopping in mind.

The Law Commission’s draft Bill is intended to simplify and modernise the transfer of ownership rules as they apply to consumers, so that the rules are easier to understand. The 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.

However, it’s important to ensure that any changes to the rules will have a positive impact overall so the full range of potential implications of the proposed new rules require careful consideration.

During the course of our work, we have identified a common practice among retailers of delaying the point at which the sales contract is formed, until the goods are dispatched the consumer. The evidence we have received about the practice does not suggest that it causes consumer detriment in general terms. However, it would reduce the impact of our reforms which, like most consumer protections, depend on a sales contract being in place.

The reduced impact of these recommended reforms might not therefore justify their cost to businesses (for example legal and training costs from transferring to the new rules) and their potential costs to the estates of insolvent retailers. Any decision on whether to implement these reforms will therefore have to balance carefully the competing considerations.

The existing protections for consumers who have paid by credit or debit card would be unaffected by the reforms. Those consumers can often claim reimbursement from their bank if goods they have paid for are not delivered, meaning that the consumer group that stands to benefit from the reforms is small. However, the reforms could help those who have paid by cash, cheque or balance transfer, who otherwise may be left with no claim on the goods and no money back in the event of an insolvency.

We believe that these reforms might become more necessary or effective in the future, should retail and finance practices change. The reforms should be kept under review, as should the practice of delaying contact formation.

Professor Sarah Green, Commercial and Common Law Commissioner said:

“The current transfer of ownership rules are shrouded in complex language and difficult to understand.”

“It’s clear, however, that there is a careful balance to be struck between various competing considerations before any decision to implement these proposals is made.”

“We will continue to monitor the situation and will provide an update if and when we think it will be beneficial to reform the law in this area.”

The draft Bill

The final draft Bill would introduce new rules into the Consumer Rights Act 2015 around the transfer of ownership under contracts for the sale of goods between a trader and a consumer. The changes include:

• New rules: Different rules would apply, depending on the type of good in question. For example, for a good bought in a physical store, the contract is made when the good is purchased. For a generic item bought online, there are a range of points which could trigger the contract of sale. [Find out more on pages 3-4 of the summary of the report]
• Modernised language: Consumer focused language that is less likely to be misinterpreted would be included. For example, the new rules refer to “trader” and “consumer” (rather than “buyer” and “seller”).
• Mandatory rules: Once implemented, the rules in the draft Bill would become mandatory, nullifying the effect of any contract where ownership of the goods is transferred over at a later point in the process.

View the report and draft Bill, and a summary of the report here.