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The Law Commission has recommended new legislation to clarify the law on the transfer of the ownership of goods to consumers.
The purpose of the new legislation is to amend the Consumer Rights Act 2015 in order to clarify who owns goods in circumstances where:
Currently, this proposal is contained in a Bill i.e. the legislation is still in draft form and subject to further debate and changes before it is implemented into law.
The Law Commission's view is that the law needs to be modernised to reflect modern day consumer behaviours and to protect consumers in the event of a trader's insolvency.
Consumers often pay for goods in advance of receiving them (it's how most online transactions work) and so the law needs to keep up and ought to be clearer on when the ownership of goods transfers.
The current law on when ownership passes (which dates back to 1979 although the wording used can be traced back to the 1800s) is difficult for non-lawyers to understand and currently allows traders to assert that ownership of goods has not passed if full payment has not been received (but where a substantial deposit has been paid instead). This can be to the detriment of consumers who have paid sums in advance but have no prospect of recovering their payment in the event of an insolvency but also do not yet have the goods in their possession to show for it. It is one reason why a lot of consumer websites will recommend that consumers pay for online or distance orders by credit card, because where they do the Credit Card provider is jointly liable with the retailer under section 75 of the Consumer Credit Act 1974.
The Law Commission has proposed something far simpler than the current position.
In a nutshell, if a consumer is paying in advance for a product that is:
e.g. let’s say a specific used car from an online car seller
Ownership will transfer to the consumer when the contract is made.
This is normally at the time the payment is made or when the online retailer confirms the order in response.
e.g. the customer buys a garment online (they’re not buying that exact garment pictured, they’re buying from stock).
Ownership will, generally, transfer when the item is earmarked for the consumer e.g. when the consumer’s name is placed on the item in a way that’s supposed to be permanent or the item is sent to a carrier for delivery to the consumer (there’s actually a list of circumstances that can amount to this but they are not reproduced here).
The Bill, if it becomes law, means that traders will no longer be able to assert that ownership has not passed to a consumer in circumstances where only a deposit has been paid (and payment in full has not been received). The Law Commission believes that this will help to protect consumers (particularly those who have paid substantial deposits prior to a trader's insolvency) as the ownership of the goods may already have passed to the consumer.
No change is proposed to the principle that goods will remain at the trader's risk until they come into the consumer's physical possession.
The Law Commission's consultation on the Bill closed on 31 October 2020 and the responses are being analysed.
There is talk of an increased urgency to see this progress further quickly though as online shopping has sky-rocketed because of the pandemic (we nearly managed a whole article without mentioning Covid) and the risk of trader insolvencies has increased in recent times.
We expect, as is the case after most consultations, that the draft Bill may be amended before it is presented to Parliament. However, it seems pretty likely that some variation of the core proposal that title to goods ordered online will pass earlier than they currently do will make it through to law given the above context.
We think it is reasonably unlikely that well worn and well run order picking/fulfilment and dispatch processes will be changed wholesale because of any change in the law – those operations work how they do for good reasons, but there may be some circumstances (particularly where third party suppliers insist on Retention of Title clauses in their supply agreements or if there's any possible issue with solvency), where it could in future be desirable for a retailer to designate goods in stock for particular customers later in their processes than may currently be the case and, in any event, retailers should be aware of this likely change in consumer's rights.
