Law Commission’s consultation on consumer rights in insolvency to cover online contract formation

Consultation, which considers online contract formation and sales in depth, closes 31 October.

The Law Commission is consulting on a draft Bill to update and enhance consumers’ rights when a supplier becomes insolvent. The Bill is particularly relevant to tech lawyers as it deals in depth with contract formation online. The changes would apply to England and Wales. In recent years the number of retailer insolvencies has 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.

The proposed changes aim to provide clarity for consumers about when they will own goods they have pre-paid for, particularly if a retailer becomes insolvent. Guidelines will set out ways of identifying the consumer as legal owner, including if goods have been labelled or altered for the buyer, for example, an engraved ring or changing blinds to fit a consumer’s window.

The current rules on “transfer of ownership” date back to 1893 and are not fit for modern-day shopping practices. The Law Commission’s proposals plan to implement recommendations from the its previous report on Consumer Prepayments on Retailer Insolvency, which it published in 2016. 

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. This means that more and more people are paying for goods before they receive them. The Law Commission has established that especially with online sales, retailers tend to seek to delay formation of the contract until the goods are sent, or in some cases delivered, to the consumer. The Law Commission has taken this into account in the drafting of the Bill and the timing of the formation of the contract is considered in depth in section 4 of the consultation paper.

The Law Commission recommends that, in an insolvency situation, legislation should include a list of events and circumstances which would be sufficient to transfer ownership to the consumer. Therefore, the Consumer Rights Act 2015 should be amended to include the following non-exhaustive list of events and circumstances which would be sufficient to identify ownership by the consumer:

  • the goods have been labelled with the consumer’s name in a way that is intended to be permanent;
  • the goods have been set aside for the consumer in a way that is intended to be permanent;
  • the goods have been altered to a specification agreed between the consumer and the retailer;
  • the consumer is told that goods bearing a unique identifier will be used to fulfil the contract;
  • manufacture of the goods is completed, if the goods are to be manufactured to a specification agreed between the consumer and the trader;
  • the consumer examines the goods and agrees they are to be used to fulfil the contract;
  • the goods are delivered to a courier for delivery to the consumer;
  • the goods are delivered to the consumer; or
  • the goods are identified in some other way by the retailer, and the retailer intends the identification to be permanent.

The changes will not benefit a consumer if the item they have purchased has not yet been made.

The consultation ends on 31 October 2020. Following the consultation, the Law Commission will finalise the text of the draft Bill, which it will publish in a report. After that BEIS will decide if it wishes to implement the draft Bill.

Published: 2020-07-29T09:00:00

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