Authored By: Ahmed Ismail
University Of London
Introduction
Just imagine paying in full for a consignment of goods stored in an identified warehouse, and discovering that upon your seller’s insolvency, you own nothing. You are not the owner of the goods. You are not even a secured creditor. You join the queue of unsecured creditors and, in all likelihood, you end up recovering nothing at all. This was not merely a theoretical possibility under English law before 1995. It was, in fact, the commercial reality for buyers of unascertained goods forming part of a bulk (before 1995). The Sale of Goods (Amendment) Act 1995 (‘the 1995 Act’) was Parliament’s response to this problem. The question this article examines is a just simple one: Did it work?
The short answer is: yes, but partially. The 1995 Act introduced sections 20A and 20B into the Sale of Goods Act 1979 (‘SGA 1979’), conferring property rights in an identified bulk upon prepaying buyers before their goods are physically separated. This was a commercially significant improvement. However, the reform is narrow in scope, leaves specific types of buyers entirely unprotected, and faces many interpretive challenges that lead to unjust outcomes in specific commercial contexts. A critical evaluation of the 1995 amendment reveals that the amendment was only successful in removing a particular anomaly and fails to resolve the deeper structural tensions in English commercial law.
This article proceeds in five parts. Part II examines the significance of property in English commercial law and the pre-1995 problems. Part III analyses the reforms introduced by the 1995 Act. Part IV critically evaluates what the Act achieved and where it fell short. Whereas Part V concludes the article.
The Pre-1995 Position: A Harsh and Anomalous Rule
The Central Role of Property in English Commercial Law
Property is not merely a concept in English commercial law; it is the main principle around which a contract of sale revolves around. The moment the property passes is significant as it determines which party bears the risk of loss or damage,[1] whether the seller may sue for the price,[2] whether a frustrated contract is avoided,[3] and most importantly, whether a buyer can assert a proprietary claim to goods upon the seller’s insolvency.[4] This ‘lump concept’ approach, as Professor Karl Llewellyn famously described it, connects a lump of legal consequences to a single event i:e moment of transfer of property in the goods.[5]
Llewellyn, while drafting the American Uniform Commercial Code (UCC), critiqued that the better approach is the issue-by-issue approach: each legal consequence of a sales transaction should be determined on its own merits rather than by reference to a property interest. English law has never adopted such an approach, and the 1995 Act, as this article argues, does not meaningfully depart from it. Thus, English law adopts the lump approach and connects a lump of legal consequences with a single property interest, thus, making property, a significant aspect of commercial transactions.
Section 16 and Its Limitations
Before the 1995 reform, the position was only governed by section 16 SGA 1979, which provided that no property in unascertained goods could pass until those goods were ascertained.[6] The section seems quite logical in its foundation: one cannot own what one cannot identify, thus, it promotes certainty. But its application to buyers of quasi-specific goods: those who have purchased a specified quantity from an identified bulk, produces results that are commercially unjust.
One practical example is the case of Re Wait.[7] Wait contracted to purchase 1,000 tons of wheat on the vessel Challenger and sold 500 tons to a buyer who paid in full. When Wait became insolvent, the Court of Appeal held that the buyer had no proprietary interest in any part of the wheat. Atkin LJ reasoned that equity could not intervene to create a charge over an unidentified portion, since the SGA 1979 constituted a complete code on the subject.[8] Thus the buyer who had paid for goods on an identified ship received nothing at the end and went home empty handed.
The result becomes even more absurd when one considers Re London Wine Co (Shippers) Ltd.[9] Buyers who had paid for wine stored in the seller’s warehouse, even having ‘certificates of ownership’, could not establish any proprietary interest upon the seller’s insolvency. Because of the fact that no wine had been physically separated; none of the buyers could point to specific bottles as theirs. The Law Commission described the outcome as ‘anomalous’: a buyer of a specified quantity from an identified bulk who had paid in full was treated no better than a buyer of purely generic goods.[10] Thus, prior to the 1995 amendment, the law was not in a satisfactory condition and produced unjust outcomes, as can be seen from the discussion of these cases.
The Strictness of Appropriation
Section 18, rule 5(1) SGA 1979 offered some protection but not a complete one: property could pass in unascertained goods if goods of the contract description in a deliverable state were ‘unconditionally appropriated’ to the contract with the other party’s assent.[11] However, in practice, the courts set the bar at an extreme level that was very difficult to meet.
As can be seen from the case of Carlos Federspiel & Co SA v Charles Twigg & Co Ltd, in which bicycles manufactured and packed in containers bearing the buyer’s name and address were held not to have been unconditionally appropriated before shipment.[12] Pearson J required that the goods be ‘irrevocably attached’ to the contract; merely setting aside the goods was not sufficient for the purposes of unconditional appropriation to be effective. Such an approach seems quite harsh on the innocent buyer who had paid for the goods, and the goods while being even labelled as belonging to him, were held not to be the buyer’s property.
III. The 1995 Reforms: What Changed
Section 20A: Co-Ownership in the Bulk
The main reform introduced by the 1995 Act is section 20A, which confers an undivided share in an identified bulk upon a prepaying buyer even before the goods are physically separated.[13] The section applies only where three conditions are fulfilled: First, the contract is for a specified quantity of unascertained goods; second, those goods form part of a bulk identified in the contract or by subsequent agreement; and third, the buyer has paid for some or all of the goods.[14] Where these conditions are satisfied, the buyer becomes an ‘owner in common’ of the bulk proportionate to the quantity paid for.[15]
The significance of this for the pre-1995 caselaw can be seen from the fact that under the old law, the buyer in Re Wait received nothing. But now, by virtue of section 20A, a buyer in identical circumstances who has paid for a specified quantity from an identified bulk now holds a proprietary interest in the bulk itself. Upon the seller’s insolvency, the buyer can enforce his co-ownership rights, thus giving him priority over other unsecured creditors. This is a substantial improvement.
Handling Shortfalls: The Quantity and Ratio Formulae
One of the most technical aspects of the 1995 Act is its treatment of shortfalls in the bulk. The Act addresses the issue of who bears the loss of goods in case of a shortfall, through a two-fold mechanism proposed by Professor Goode and the Law Commission.[16]
The quantity formula (seller as buffer): Where the seller retains a share in the bulk, any reduction is attributed first to the seller’s retained interest.[17] As long as the shortfall falls within the seller’s share, buyers receive their full contracted quantity. For instance, consider a bulk of 1,200 kgs of wheat shared between buyers entitled to 720 kgs in total, with the seller retaining 480 kg. If 200 kg out of the bulk is accidentally destroyed, the loss falls entirely on the seller’s share; the buyers’ entitlements remain the same, and there is no reduction in the buyer’s share. It reflects the commercial expectation that the seller, as a co-owner with a retained interest in the bulk, should bear the risk of any shortfall/ deterioration first.
The ratio formula (pro-rata abatement): On the other hand, where the seller has no interest in the bulk, and the bulk is insufficient to satisfy all buyers’ claims. Section 20A(4) reduces each buyer’s share proportionately, so that the aggregate of undivided shares equals the actual remaining bulk.[18] Thus, no co-owning buyer is under an obligation to compensate another for any shortfall in the goods; meanwhile, the remedy for wrongful delivery remains a personal contractual claim against the seller.
This two-fold mechanism is one of the most commercially significant features of the 1995 Act. It protects buyers as long as a seller’s buffer exists, and transitions to equitable pro-rata distribution when that buffer is gone. Hence, ensuring that if possible, any shortfall must be compensated from the seller’s share, since it was the seller who went insolvent.
Section 20B: Preventing Commercial Deadlock
Co-ownership creates a practical difficulty sometimes, such as when dealing with jointly owned property that usually requires the consent of all co-owners. Section 20B resolves this by introducing the notion of ‘deemed consent’ as per which, each co-owner has consented to deliveries out of the bulk to other entitled co-owners.[19]
It has been given practical effect on a ‘first come, first served’ basis: buyers who receive delivery first take their goods without liability to those who come later, even if a subsequent shortfall leaves later buyers with less than their full entitlement. The Law Commission preferred this approach over a complex adjustment scheme on the basis that commercial certainty must take precedence.[20]
Codification of Ascertainment by Exhaustion
The 1995 Act also codified the common law concept of ascertainment by exhaustion, previously established in Wait & James v Midland Bank and extended in The Elafi.[21] Section 18, rule 5(3) now provides that where a bulk is reduced to the quantity owed to a single buyer, that buyer automatically becomes the sole owner of the remaining goods without any need for any further act of appropriation.[22] Such a provision removes uncertainty and enhances property protection in the final stages of bulk delivery.
Critical Evaluation: Where the Act Succeeds and Where It Falls Short
What the Act Genuinely Achieves
The 1995 Act works best in the case of a buyer who has paid for a specified quantity from an identified bulk and whose seller then becomes insolvent. The 1995 reform provides such a buyer with protection of his property by entitling him to property rights in the bulk. It converts a prior unsecured creditor into a co-owner with real proprietary rights. Cases like Re Wait and Re London Wine would now be decided differently, if the conditions of section 20A are satisfied.[23] This is not a small achievement. It addresses a significant injustice in modern commerce. And enhances the level of protection afforded to such buyers, ultimately promoting certainty and fairness in commercial transactions.
Where the Act Fails: The Generic Goods Gap
The major limitation can be seen from its complete inapplicability to purely generic goods: goods with no identified source. A buyer who contracts for ‘100 tons of wheat’ without specifying a particular ship, warehouse, or storage facility remains entirely outside the scope of section 20A, which means the 1995 reform provides no protection to such a buyer. Upon the seller’s insolvency, the buyer is still a mere unsecured creditor regardless of the fact that he had paid for the goods or not. The Law Commission chose to limit the reform to quasi-specific goods only. In short, the protection offered by the 1995 Act to the buyer is limited to the buyer of quasi-specific goods only and is of no help to the buyer who contracted for purely generic goods.
The Prepayment Precondition
One of the conditions for Section 20A to become applicable is that it requires actual payment as a condition of co-ownership. A buyer who has contracted for goods from an identified bulk but has not paid receives no protection. This can produce significant issues in modern commercial transactions, where payment against documents or after delivery is the custom. The prepayment condition was a deliberate policy choice, but it leaves a significant gap in addressing modern commercial needs.
The Uncertainty of Bulk Identification: The Quadra Commodities Case
An unresolved uncertainty has emerged from the recent litigation in Quadra Commodities SA v XL Insurance Co SE.[24] In that case, warehouse receipts described goods as being stored at the warehouses of a particular entity without identifying the specific silo or storage unit. Butcher J held that this was insufficient to constitute an identified bulk for the purposes of section 20A to become applicable: such vague references to a general storage area do not satisfy the requirement in section 61 SGA 1979 that the bulk be contained in ‘a defined space or area’.[25]
On Appeal, the Court of Appeal sidestepped the section 20A question.[26] The Supreme Court has granted permission to appeal, and until the Supreme Court gives its verdict, commercial parties cannot be confident that section 20A will protect them even where they believe they have identified the relevant bulk. In modern commerce, where goods are frequently stored across multiple sites and moved between locations, this creates much practical uncertainty.
The Deeper Structural Problem
At the fundamental level, the 1995 Act does not alter the underlying framework of English sales law. The lump concept remains as it is. Property is still the single factor that determines risk, insolvency protection, and a range of other legal consequences. The 1995 Act simply creates an additional layer of co-ownership of the bulk without disturbing the framework within which it operates. It must be noted that sections 20A and 20B are, in practice, frequently excluded by standard form contracts in certain industries, meaning the ultimate practical protection they offer may be more limited than as suggested by their statutory scope.
Conclusion
The Sale of Goods (Amendment) Act 1995 made an outstanding improvement in English commercial law. The introduction of section 20A co-ownership, the treatment of shortfall in bulk issue, reflecting Goode’s quantity and ratio formulae, the deemed consent provision in section 20B, and the codification of ascertainment by exhaustion collectively represent a substantial practical advancement on the pre-1995 position. Thus, making the present state of law more satisfactory than it was before.
However, the 1995 Act is better to be described as an ‘incomplete reform’. It is limited in certain circumstances and does not assist buyers of purely generic goods, requires prepayment as a condition of protection, and faces uncertainty in its application to modern commercial transactions, as illustrated by the Quadra Commodities case. It also leaves the deeper flaw identified by Llewellyn untouched: the lump-concept that makes property the single determining factor of too many legal consequences.
To conclude, the prepaying buyer’s dilemma has been eased, and not eliminated. Further legislative action is required, whether through the adoption of the UCC’s issue-by-issue model or a targeted reform addressing generic goods, remains crucial to meet the fair regime of proprietary protection that English commercial law has not yet fully achieved.
Bibliography
Primary Sources
Legislation
Sale of Goods Act 1979
Sale of Goods (Amendment) Act 1995
Cases
Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240
Healey v Howlett & Sons [1917] 1 KB 337
Quadra Commodities SA v XL Insurance Co SE [2022] EWHC 431 (Comm); [2023] EWCA Civ 432
Re London Wine Co (Shippers) Ltd (1986) P.C.C. 121
Re Stapylton Fletcher Ltd [1995] 1 All ER 192
Re Wait [1927] 1 Ch 606
The Elafi [1982] 1 All ER 208
Wait & James v Midland Bank (1926) 24 Ll. L. Rep. 313
Secondary Sources
Books
McKendrick E, Goode and McKendrick on Commercial Law (6th edn, Penguin 2020)
Law Commission Report
Law Commission, Sale of Goods Forming Part of a Bulk (Law Com No 215, 1993)
Journal Article
Llewellyn K, ‘Through Title to Contract and a Bit Beyond’ (1938) 15(2) New York University Law Quarterly 157
Email: ahmedismail123u@gmail.com
[1]Sale of Goods Act 1979 (SGA 1979), s 20.
[2]SGA 1979, s 49.
[3]SGA 1979, s 7.
[4]E McKendrick, Goode and McKendrick on Commercial Law (6th edn, Penguin 2020) ch 8.
[5]K Llewellyn, ‘Through Title to Contract and a Bit Beyond’ (1938) 15(2) New York University Law Quarterly 157, 158.
[6]SGA 1979, s 16.
[7]Re Wait [1927] 1 Ch 606.
[8]ibid, 636 (Atkin LJ).
[9]Re London Wine Co (Shippers) Ltd (1986) PCC 121 (Ch).
[10]Law Commission, Sale of Goods Forming Part of a Bulk (Law Com No 215, 1993) para 3.6.
[11]SGA 1979, s 18, r 5(1).
[12]Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 (QB) 255 (Pearson J).
[13]Sale of Goods (Amendment) Act 1995 (SG(A)A 1995), s 1, inserting SGA 1979, s 20A.
[14]SGA 1979, s 20A(1)(a)–(b).
[15]SGA 1979, s 20A(2).
[16]Law Com No 215 (n 11) para paras 4.10–4.14 and 6.6.; McKendrick (n 4) 8.65.
[17]SGA 1979, s 20A(3).
[18]SGA 1979, s 20A(4).
[19]SGA 1979, s 20B(1)(a)–(b).
[20]Law Com No 215 (n 11) para 6.7.
[21]Wait & James v Midland Bank (1926) 24 Ll LR 313; The Elafi [1982] 1 All ER 208 (QB).
[22]SGA 1979, s 18, r 5(3).
[23]Re Stapylton Fletcher Ltd [1995] 1 All ER 192 (Ch).
[24]Quadra Commodities SA v XL Insurance Co SE [2022] EWHC 431 (Comm) [111] (Butcher J).
[25]SGA 1979, s 61, definition of ‘bulk’.
[26]Quadra Commodities SA v XL Insurance Co SE [2023] EWCA Civ 432 [134] (Sir Julian Flaux).
