Section 20A & 20B of the Sale of Goods Act 1995 - Essay Example

Discuss Section 20A & 20B of the Sale of Goods (Amendment) Act 1995’s impact on section 16 of the Sale of Goods Act 1979 regarding the passing of property in goods The Sale of Goods Act 1979 (SGA1) implemented strengthened rights for consumer into sales of goods contracts by implying terms that cannot be contracted out of by the seller2. Of particular importance to the consumer are the terms implied under ss.13-15, which address description and the quality of goods supplied. These in turn directly correlate to the buyer’s right to reject goods and seek remedies against the seller. Most importantly, the SGA implied terms are applicable irrespective of whether the seller has expressly incorporated such terms in the contract. Moreover, any attempt by the seller to exclude the SGA implied terms against a consumer will be void3. With regard to the statutory protection of consumers Atiyah et al comment that “In England, the implied terms as to quality and fitness in ss.13-15 of the 1893 Act represented an important step in the abandonment of the original common law rule of caveat emptor”4. This is mirrored in the current SGA provisions, which has gradually been “extended to other contracts for the supply of goods as well as contracts of sale”5. The strengthened position of consumers is further highlighted by the fact that the SGA definition of “business” is wide and does not require evidence of registration6. Therefore if the buyer satisfies the “consumer test” and the “sale is the course of a business” as asserted by section 14(2) of the SGA, the implied terms regarding quality, title and fitness for purpose will be applicable. However, whilst the SGA’s overriding purpose was to address the imbalance of bargaining power in consumer contracts, the provisions of the SGA on the passing of risk have often been criticised for not always placing the risk on the appropriate party within the contract7. For example, the legal rules for determining ownership of goods in sale of goods contracts are covered by the common law, equity and statute8and the SGA sets out legal presumptions regarding ownership however these presumptions are subject to the freedom of contract principle9. Under the SGA, ownership depends on whether the goods are ascertained or unascertained goods.10 For example, the general position regarding passing of property in goods under sale of goods contracts is covered by sections 16-19 of the SGA and provides that if there is an express provision that the property was to pass to the buyer at a particular stage, that provision could not, in the case of a contract for the sale of unascertained goods, come into effect until those goods were ascertained under Section 16. Section 18 further provides that where goods are in bulk and not ascertained they cannot pass to the buyer. The time for determining whether goods are specific or unascertained goods is that at which the contract is made11. Additionally, the general rule set out under section 17 of the SGA provides that property in goods pass when the parties intend it to pass, thereby highlighting the freedom of contract principle, subject to the proviso in Section 16.12 However, the judicial interpretation of these complicated rules created difficulties of interpretation at common law and led to the implementation of sections 20A and 20B of Sale of Goods (Amendment) Act 199513, which impacted the interpretation of section 16 of the SGA. The focus of this paper is to critically evaluate the impact of sections 20A and 20B on section 16 of the SGA. Firstly, if we consider the rules relating to passing of risk, under Section 20(1) of the SGA, 1979, unless the contrary is agreed, the goods will remain at the seller’s risk until the property in them passes to the buyer14. If the contract is silent as to the risk then apart from the two exceptions specified in sub sections (2) and (3) of section 20 of the SGA, the basic approach commonly adopted is to tie the passing of property is to tie the passing of risk to the passing of property under the provisions in ss.16-1915. However, this approach appears flawed as the passing of property is significant for various purposes including the seller’s right to maintain an action for the risk and the seller’s right to maintain an action for the price under section 49 of the SGA. Additionally, from the buyer’s perspective the effect of section 16 is to leave a paid buyer unprotected until the goods become ascertained. Nevertheless, the rules on passing of risk are ultimately justified on the freedom of contract principles16, which allows parties to agree when they want the risk and property to pass17. Section 20 of the SGA relates to when risk passes with the property and risk passes with ownership unless otherwise agreed. This was further highlighted by the decision in the case of Phillip Head & Sons Ltd v Showfronts Ltd18. However, the main problem has arisen where a buyer has already paid for the goods and yet they remain separated from the identified bulk at the time when the bulk is damaged or lost in whole or part19. In such a scenario, the strict interpretation of Section 16 meant that the goods would be unascertained and therefore the property would not pass. This led to a position where a buyer in such a situation would simply rank as an unsecured creditor in the event of buyer insolvency with little protection if the goods were lost20. For example, in ReWait21, a buyer was left unprotected where they had purchased 500 tons of wheat from a cargo of 1,000 tons that was on board the MV Challenger ship regardless of having made payment. The alternative method to address this situation was to provide the buyer with protection through creation of a tenancy in common22. For example in ReStapylton Fletcher Limited23 the plaintiff was sold wine, which was kept separately from the seller’s own wine. However, due to the fact that it was impossible to determine the specific consignment of wine that was owned by the customer, a tenancy in common was created in favour of the buyer to address the undesirable position the buyer would have been in under section 16 of the SGA24. Another approach of the courts in equity was to identify the unascertained goods on grounds of a right to a future chose in action25. For example, in Tailby v Official Receiver26Lord Watson asserted that there was one requirement in equity, which “must be fulfilled in order to maintain a n assignee’s right attach to a future chose in action, which is that on its coming into existence it shall answer the description in the assignment, or in other words, shall be capable of being identified as the thing, as one of the very thing assigned”27. Therefore on this basis it would seem that physical identification or ascertainment was not necessary provided the whit belonged to an identified bulk as a whole. However, the problem was the uneven application of this equitable doctrine and Atiyah et al refer to Atkin LJ’s denial that “equity would ever have applied its doctrines to an ordinary sale of future goods28” Accordingly, under section 16 a buyer of unascertained goods has minimal protection in the event of seller insolvency or goods being lost due to the property not passing. In order to address this situation, the Law Commission undertook a review and the report recommendations resulted in the sections 20A and 20B being implemented under the Sale of Goods (Amendment) Act 1995, which effectively created a new proprietary interest in order to protect buyers where goods purchased are not separated from the identifiable bulk29. Section 20A of the SGA provides the right for the buyer to obtain an undivided share of goods in unascertained goods from an identified bulk30. Section 20A applies to the goods when the buyer pays for the goods and effectively enables co-ownership of the bulk identifiable goods with other buyers who have paid. Furthermore, section 20(A) of the SGA provides that a buyer will be an owner in common of the goods in the following circumstances: 1) Where there is a sale for a specified quantity of unascertained goods that comprise part of the bulk. However, the quantity must be specified otherwise the tenancy in common at common law rules will be applicable31; 2) The bulk must be specifically identified in the contract32. For example, section 61(1) of the SGA 1979 defines this as 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 or the same number of quantity”33. 3) The buyer has paid the purchase price or a part of it34. It is important to note that Section 16 still applies in cases where the buyer has not paid for the goods35. Therefore the fundamental aspect of Section 20 is to change the rules on when goods become ascertained where the goods form part of a bulk to protect a buyer that has paid for the goods. Furthermore, section 20(A) (3) of the SGA defines the buyer’s share of the entire bulk as being commensurate to the quantity of goods paid for. Notwithstanding, section 20A (4) of the SGA provides protection for the buyer in the event of natural wastage or where the seller has sold more goods than are in the bulk. In addressing the rights of co-owners, section 20(B)(1) provides that all the co-owners under section 20(A) are deemed to have consented to delivery of goods from the bulk to a co-owner with the proviso that no co-owner will receive more than they are due under the terms of their contract and the amount they have paid for36. Additionally, in order to provide further protection, section 20(B)(2)| and (3) specifically provide that the co-owners are not liable to compensate other co-owners in the event of a shortfall as liability for overselling remains with the seller. Finally, under section 20B (1) of the SGA, co-owners are also deemed to have consented to any sale of the goods by a co-owner to enable buyers to deal with goods in transit. The above analysis highlights that the rules pertaining to the sale of a specific unascertained goods are intrinsically complex. Prior to the amendments introduced by the Sale of Goods (Amendment) Act 1995, the position under section 16 of the SGA led to an undesirable position where the pendulum swung too far in favour of the seller; resulting in a paid up buyer being reduced to unsecured creditor due to property not passing. Therefore the section 20A and Section 20B provisions introduced by the 1995 Act are welcome in addressing these uncertainties and the ad hoc attempts of judiciary to address the inequitable position under the SGA 1979. Furthermore, buyers are now better protected under the Section 20A and Section 20B provisions, which is clearly a welcome move to the law in order to address risk in contracts where buyers purchase a specified quantity of unascertained goods from an identified bulk. BIBLIOGRAPHY P. S Atiyah. J. N. Adams, & H. L. MacQueen (2005). Sale of Goods. Pearson Education. Beale, H., Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. M. Bridge, (2009) Sales of Goods. Oxford University Press Fafinski, S. & Finch, E. (2009). Contract Law. 2nd Edition Longman. John Macleod (2006). Consumer Sales Law. 2nd Edition Routledge Cavendish McKendrick, E. (2010). Contract Law: Text, Cases and Materials. 4th Edition Oxford University Press J. Poole (2010). Contract law. 10th Edition Oxford University Press. Legislation Sale of Goods Act 1979 Sale of Goods (Amendment) Act 1995 Available at www.opsi.gov.uk accessed November 2010. Read More