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Sales of Goods (Amendment) Act 1995

LAWS OF THE UNITED KINGDOM

SALE OF GOODS (AMENDMENT) ACT 1995
(1995 c. 28)

An Act to amend the law relating to the sale of unascertained goods forming part of an identified bulk and the sale of undivided shares in goods.

[19th July 1995]

PARLIAMENTARY DEBATES

Hansard, H.L. Vol. 563, col. 1453, Vol. 564, col. 1467, Vol. 565, col. 680, H.C. Vol. 263, col. 1283.

INTRODUCTION AND GENERAL NOTE

This Act was introduced in the House of Lords sponsored by Lord Mustill. It implements the findings of the English and Scottish Law Commissions contained in their joint Report of July 1993 Sale of Goods forming part of a bulk (Law Com. No. 215; Scot. Law Com. No. 145) (H.C. 807) (the Report).

The Report resulted from a request to the Law Commissions from a leading international commodity trade association to consider examining the law relating to the rights of purchasers of goods forming part of a larger bulk carried by the sea. The association's anxiety arose following a decision of the Commercial Court in Rotterdam in 1985 (The Gosforth S. en S. 1985 Nr. 91) during which the court referred in passing to the fact that under English law, which governed the contract, s.16 of the Sale of Goods Act 1979 (c. 54) (the 1979 Act) appeared to prevent property passing before the goods were ascertained.

The Law Commissions carried out preliminary research to try to identify the extent of any problem in practice and received over 100 replies to its questionnaire, mainly from traders in goods such as grain, animal feedstuffs, vegetable oils and oilseeds or commodities-sugar, coffee, tea, cocoa, metals etc. Over 85 per cent said that they purchased goods while they were still part of a bulk, roughly divided equally between purchases on sea and on land. Some 10 per cent had had problems because the seller had gone into liquidation after being paid but before delivery.

The consultation showed that there was support for reform of s.16 of the 1979 Act and of the Bills of Lading Act 1855 (c. 111). As the latter was regarded as the more pressing, the Law Commissions issued a report (Rights of Suit in Respect of Carriage of Goods by Sea (1991) Law Com. No. 196; Scot. Law Com. No. 130) which was implemented by the Carriage of Goods by Sea Act 1992 (c. 50). That Act made three changes:

(a) it repealed the Bills of Lading Act 1855 thus removing the link between the acquisition of rights and the transfer of property;

(b) sea waybills and ship's delivery orders were included among documents to which the Act applied;

(c) it enabled regulations to be made to bring electronic data exchange within the scope of the Act.

The Law Commissions also consulted on whether there should be a special rule for insolvency cases. Paragraphs 4.22 to 4.33 of the Report set out the arguments which were raised and the reasons why, in the event, the Law Commissions decided to take no action at present.

During its second reading in the House of Lords (the Bill passed all stages in the Commons without debate) Lord Mustill explained that there were three situations where the property in goods may pass. The first is where the goods are identified conclusively at the time of the contract. They may be single items or several or in bulk. ("I will buy that bottle of wine"; or "I will buy all the grain in the holds of the ship Challenger"). The existing law, s.17(1) of the 1979 Act, prescribes that the property is transferred when the parties intend and s.18, Rule 1, says that, unless there is a different intention, property passes when the contract is made. This arrangement protects the buyer who has pre-paid against the seller's insolvency; even though the goods have not been delivered, they belong to him. It should be noted that if they are destroyed between contract and delivery through no fault of the seller or a carrier, the loss falls on the buyer because, by s. 20 of the 1979 Act, risk passes with property unless otherwise agreed.

The second situation where property in goods may pass is where goods are merely identified by a general description ("200 bottles of Beaujolais Villages 1992"). The seller may deliver any goods from any source. Here the law corresponds with common sense; s.16 of the 1979 Act says that until goods are identified they cannot be "appropriated" to the contract. The buyer cannot own the goods at the time of the contract because no one can be the owner of something when it is impossible to know what he owns and there is no means of finding out. Until appropriation the pre-paying buyer has no protection against the seller's insolvency.

This Act deals with the third situation which Lord Mustill described as midway between the two extremes: the goods are identified at the time of the contract to the extent that they must come from a fixed and prescribed source -a group of items or a bulk of the same kind of goods - but no one specifies which items or which part of the bulk are involved ("I will buy 200 bottles of Beaujolais Villages 1992 now in your cellar"; or "I will buy 1,000 tonnes out of the cargo of grain in the holds of the ship Challenger"). The seller can only deliver goods from the prescribed source.

However, property cannot pass at the time of the contract. It is clear that the bottles of wine are there among the rest of the grain in the ship but until the bottles are physically separated, or the 1,000 tonnes of grain unloaded, there is no means of knowing whether a particular bottle or a given shovelful of grain has or has not been sold to the buyer.

The present Act attempts to remove a gap in the law by making a new rule on sales of goods out of bulk which would enable property in an undivided share in the bulk to pass before ascertainment of goods relating to specific sale contracts. This rule is contained by an amendment to s.18 of the 1979 Act. The amendment recognises, and puts into statutory form, the doctrine of "ascertainment by exhaustion" - which is a name for the situation where stock from which the goods are to be drawn is depleted successively by withdrawals until all that is left will satisfy the contract in question. Using the example of the Beaujolais quoted above, if bottles are removed from the cellar until there are only 200 left, at that moment it is possible to identify those 200 as the subject matter of the contract, and property passes to the buyer.

The Act also introduces a wholly new concept. Upon payment of all or part of the price, the buyer will become a co-owner with others having a claim on the entire bulk. Although there is no ownership of particular objects, the buyer will acquire an immediate undivided share. That interest as co-owner will prevail in an insolvency and protect commercial and private buyers alike. The previous law provided that the purchaser of a quantity of cargo shipped on board a particular ship did not obtain any rights of ownership when the goods were shipped, or when the bill of lading was delivered to him or when he paid for the goods. He had to wait until the ship docked, was unloaded and his share had been identified - either by physical delivery or by the process of exhaustion. The buyer was prejudiced in case of insolvency of the seller or damage to the goods.

These reforms are achieved by the insertion into the 1979 Act of two new sections. The newly inserted s.20A provides the basic rule on the passing of property in an undivided share in the bulk. The newly inserted s. 20B modifies the legal consequences of owning goods in common so as to enable trading in the bulk goods to continue in the normal way. Amendments are also made to s. 61 of the 1979 Act to include new definitions introduced by the Act.

The Act is essentially for the benefit of commercial traders although there are circumstances where individuals, dealing as consumers, may be assisted. Buying shares in horses or boats, for example, is not uncommon and the new rules would apply to such contracts.

COMMENCEMENT

The Act comes into force on September 19,1995 and applies to England and Wales, Scotland and Northern Ireland.

ABBREVIATIONS

The 1979 Act: Sale of Goods Act 1979.

Unascertained goods forming part of an identified bulk

1. - (1) At the beginning of section 16 of the Sale of Goods Act 1979 ("the 1979 Act") there shall be added the words "Subject to section 20A below".

(2) In section 18 of the 1979 Act, at the end of rule 5 there shall be added the following -

"(3) Where there is a contract for the sale of a specified quantity of unascertained goods in a deliverable state forming part of a bulk which is identified either in the contract or by subsequent agreement between the parties and the bulk is reduced to (or to less than) that quantity, then, if the buyer under that contract is the only buyer to whom goods are then due out of the bulk -

(a) the remaining goods are to be taken as appropriated to that contract at the time when the bulk is so reduced; and

(b) the property in those goods then passes to that buyer.

(4) Paragraph (3) above applies also (with the necessary modifications) where a bulk is reduced to (or to less than) the aggregate of the quantities due to a single buyer under separate contracts relating to that bulk and he is the only buyer to whom goods are then due out of that bulk."

(3) After section 20 of the 1979 Act there shall be inserted the following -

"Undivided shares in goods forming part of a bulk

20A. - (1) This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met -

(a) the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and

(b) the buyer has paid the price for some or all of the goods which are the subject of the contract and which form part of the bulk.

(2) Where this section applies, then (unless the parties agree otherwise, as soon as the conditions specified in paragraphs (a) and (b) of subsection (1) above are met or at such later time as the parties may agree -

(a) property in an undivided share in the bulk is transferred to the buyer, and

(b) the buyer becomes an owner in common of the bulk.

(3) Subject to subsection (4) below, for the purposes of this section, the undivided share of a buyer in a bulk at any time shall be such share as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time.

(4) Where the aggregate of the undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk.

(5) Where a buyer has paid the price for only some of the goods due to him out of a bulk, any delivery to the buyer out of the bulk shall, for the purposes of this section, be ascribed in the first place to the goods in respect of which payment has been made.

(6) For the purposes of this section payment of part of the price for any goods shall be treated as payment for a corresponding part of the goods.

Deemed consent by co-owner to dealings in bulk goods

20B.-(1) A person who has become an owner in common of a bulk by virtue of section 20A above shall be deemed to have consented to -

(a) any delivery of goods out of the bulk to any other owner in common of the bulk, being goods which are due to him under his contract;

(b) any dealing with or removal, delivery or disposal of goods in the bulk by any other person who is an owner in common of the bulk in so far as the goods fall within that co-owner's undivided share in the bulk at the time of the dealing, removal, delivery or disposal.

(2) No cause of action shall accrue to anyone against a person by reason of that person having acted in accordance with paragraph (a) or (b) of subsection (1) above in reliance on any consent deemed to have been given under that subsection.

(3) Nothing in this section or section 20A above shall -

(a) impose an obligation on a buyer of goods out of a bulk to compensate any other buyer of goods out of that bulk for any shortfall in the goods received by that other buyer;

(b) affect any contractual arrangement between buyers of goods out of a bulk for adjustments between themselves; or

(c) affect the rights of any buyer under his contract."

DEFINITIONS

"action": 1979 Act, s.61(1).

"appropriation": 1979 Act, s.18, r.5.

"bulk": s.2(a).

"buyer": 1979 Act, s.61(1).

"contract": 1979 Act, ss.2(1), 61(1).

"deliverable state": 1979 Act, s.61(5).

"delivery": ss.2(b) and 1979 Act, 61(1).

"goods": s.2(c) and 1979 Act, s.61(1).

"price": 1979 Act, s.61(1).

"property": 1979 Act, s.61(1).

"specific goods": s.2(d) and 1979 Act, s.61(1).

"unascertained goods": 1979 Act, s.18, r.5.

GENERAL NOTE

Subsection (1) inserts words in s.16 of the 1979 Act paving the way for the insertion of the new s.20A. The Act only applies where there has been prepayment for goods.

Subs. (2)

By adding to the existing r.5, this subsection gives statutory effect to the expression "ascertainment by exhaustion" which has been recognised by the courts in such cases as Waite and James v. Midland Bank (1926) 24 Ll. L. Rep. 313, (1926) 31 Com. Cas. 172; Karlshamns Olefabriker v. East Port Navigation Corp.; Elafi, The [1981] 2 Lloyd's Rep. 629 at p. 683; [1982] 1 All E.R. 208, at p. 212.

The new r.5(3) as added applies where there is one contract and one buyer. It means that a buyer's undivided share in the bulk at any time should be such a share as the quantity of goods paid for and due to the buyer out of the bulk at that time bears to the quantity of goods in the bulk at that time.

The new r.5(4) as added extends its application to cases where there are two or more contracts in which the buyer is the same person and the bulk is reduced to or less than the total of goods covered by those contracts.

The new rules are confined to goods in a deliverable state so as to avoid a clash with the existing rr.1 and 2 in s.18 of the 1979 Act. The existing opening words of s.18 also make it clear that the new rules will only apply where no different intention appears.

Subs. (3)

This inserts the new ss.20A and 20B into the 1979 Act. Section 20A enables a buyer who has prepaid for a specified quantity of unascertained goods forming part of an identified bulk to acquire an undivided share in the bulk and become a common owner with other such buyers but before his goods have been ascertained. As the new section is concerned with the passing of property in an undivided share in a bulk, it is unnecessary and inappropriate to limit it to goods in a deliverable state.

Inserted s.20A(1) of the 1979 Act

This makes it clear that the new provision is concerned with quantity not shares expressed as fractions or percentages. The bulk must be identified and the buyer have paid some part of the price.

Inserted s.20A (2) of the 1979 Act

This sets out the basic rule for the passing of property in an undivided share in the bulk. Assuming the bulk is identified, and the contract does not exclude the rule or provide for property to pass at a later date, property in an undivided share will pass as soon as the buyer has paid for all or some of the goods.

Inserted s.20A(3) and (4) of the 1979 Act

The buyer's undivided share at any time is, by subs.(3), such a share as the goods paid for and due to him bear to the quantity of goods in the bulk at that time. Subsection (4) makes it clear that the aggregate of the shares of two or more buyers can never exceed the whole of the bulk.

Inserted s.20A(5) o f the 1979 Act

This provides that where a buyer has paid for only some of the goods, any deliveries to the buyer out of the bulk should be ascribed in the first place to the prepaid goods. The reference to "delivery" includes (because of an amendment to the definition of that word in s.6(1) of the 1979 Act by this Act) a reference to an appropriation of goods to the contract in such a way that property passes to the buyer.

Inserted s.20A(6) of the 1979 Act

In ss.20A(1)(b), 20A(3) and 20A(5) reference is made to the case where a buyer has paid for some only of the goods in the contract or due from the bulk. Because in practice part-payments would not normally be related to any proportion of the goods bought, this subsection provides that part-payments are to be treated as payments for part.

Subsection (3) also inserts a new s.20B which modifies the legal consequences of owning goods in common so as to enable trading in the bulk goods to continue in the normal way.

Inserted s.20B(1) of the 1979 Act

To give effect to this intention, each co-owner is deemed to have consented to deliveries to other co-owners of the quantities due to them; otherwise, the normal rules on co-ownership would severely restrict the division of bulk to meet the expectations of all parties. Subsection 20B(1)(b) makes it clear that each co-owner can deal with goods coming within his share without needing the consent of the others. The references to "delivery" include (because of an amendment to the definition of that word in s.61(1) of the 1979 Act by this Act) a reference to an appropriation of goods to the contract in such a way that property passes to the buyer.

Inserted s.20B(2) of the 1979 Act

This subsection protects liquidators or other insolvency office-holders who release goods to co-owning buyers in reliance on the deemed consent in s.20B(1) against any action by other co-owning buyers who may receive short delivery because there is insufficient bulk to meet all claims.

Inserted s.20B(3) of the 1979 Act

This has three effects. The new rules do not:

(a) impose any obligation on a buyer who takes delivery of goods out of bulk to compensate others who receive short delivery because of a shortage;

(b) affect any contractual arrangements between the buyers for adjustments between themselves;

(c) alter or diminish contractual rights of the buyer against the seller.

Additional provisions

2. In section 61(1) of the 1979 Act -

(a) after the definition of "action" there shall be inserted the following definition -

" "bulk" means a mass or collection of goods of the same kind which –

(a) is contained in a defined space or area; and

(b) is such that any goods in the bulk are interchangeable with any other goods therein of the same number or quantity;"

(b) at the end of the definition of "delivery" there shall be added the words "except that in relation to sections 20A and 20B above it includes such appropriation of goods to the contract as results in property in the goods being transferred to the buyer;";

(c) at the end of the definition of "goods" there shall be added the words "and includes an undivided share in goods;";

(d) at the end of the definition of "specific goods" there shall be added the words "and includes an undivided share, specified as a fraction or percentage, of goods identified and agreed on as aforesaid".

GENERAL NOTE

This section inserts into s.61(1) of the 1979 Act a new definition of "bulk" and amends the existing definitions of "delivery", "goods" and "specific goods". The last two are included to make it clear that the sale of an undivided share in goods, or specific goods, is a sale of goods for the purposes of the 1979 Act.

Short title, commencement and extent

3. (1) This Act may be cited as the Sale of Goods (Amendment) Act 1995.

(2) This Act shall come into force at the end of the period of two months beginning with the day on which it is passed; but nothing in this Act shall have effect in relation to any contract concluded before the coming into force of this Act.

(3) This Act extends to Northern Ireland.

GENERAL NOTE

The Act comes into force on 19 September, 1995 but has no retrospective effect on any contract concluded before that date.

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