Risk

Risk

Risk in the context of the Sale of Goods legislation refers to the risk of physical damage to or destruction of the goods.  Typically, such risks arise from accidental causes, against which it is possible to insure. The person who takes or carries the risk, should in prudence, take out insurance against it.

The general presumption is that the risk goes with ownership.  Therefore, when property passes to the buyer, the goods are at his risk even though he has not yet taken delivery of them. The parties may agree as to which of the seller or buyer bears the risk. This may differ from the party who has title or ownership.

In “carriage insurance freight” (CIF) and free on board (FOB) contracts, the risk passes to the buyer when they are put on the carrier’s ship.  Ownership may not yet have passed.  Where the buyer is entitled to reject goods, the risk does not generally pass, even if the property in the goods has passed.


Risk and Title / Property Goods

Generally, the risk in goods follows the property or of the goods.  However, this need not necessarily be the case. The Sale of Goods Act contemplates the possibility of risk and property passing at separate times.

If goods are damaged or destroyed while they are at the seller’s risk, the buyer is not obliged to accept them. It may sue the seller for breach of contract.  Unless the damage or destruction causes frustration of the contract, the seller must supply or replace the goods, with goods conforming with the contract requirement.

If goods are destroyed or damaged when they are at buyer’s risk, the opposite applies.  The buyer must accept them and the seller may be entitled to the price.

An intermediate possibility is that damage, or more likely, destruction frustrates the contract. In this case, neither party bears the risk and the contract is discharged by reason of the supervening event. Frustration does not apply where the contract has provided specifically for which party is to bear the loss.


Passing of the Risk

Generally, the owner has the “risk” in goods, in the sense that, if they are destroyed, he loses economically.  However, the risk and property (title) may be held separately. The risk in goods may pass before title passes from the buyer to the seller.

The general principle is that, unless otherwise provided, the goods are at the seller’s risk until the property in them passes to the buyer.  Property in the goods may pass to the buyer prior to delivery, in which event the buyer may run the risk of loss to the goods prior to receiving them. Risk and property in the goods may pass either before delivery (under the default presumptions) or after delivery, where there is a retention of title.

The position as to risk (as with the position with the property in the goods) may be varied by the sale contract. In the case of retention of title, the risk usually passes to the buyer, but the seller retains title.  This is appropriate as the buyer has possession of the goods.  Where delivery is delayed by reason of one party’s fault, that party bears the risk of damage that would not have occurred, but for the default.


Transportation Required

Goods may be damaged while being transported.  The Sale of Goods Act provides that where the seller sends goods to a carrier for transmission to the buyer, it is presumed to be delivered to the buyer as if the carrier is the buyer’s agent.  Accordingly, property will and risk will pass to the buyer at the point of delivery to the carrier in the absence of provision to the contrary.

If the seller enters the contract for transportation on behalf of the buyer, he must make a reasonable contract having regard to the nature of the goods and the circumstances.  If he breaches this obligation and the goods are damaged or lost, the buyer may elect to treat delivery to the carrier as not constituting delivery to him.

Where goods are transported by sea, the seller must give the buyer sufficient information to enable the latter to insure the goods.  If he does not do so, the seller retains the risk.

Where the seller agrees to deliver goods to a location, he takes the risk of the deterioration of the goods that arise in the ordinary course of transportation and due to ordinary risks.


Destruction of the Goods

The Sale of Goods Act codifies principles equivalent to those of frustration and mutual mistake. Where there is a contract for the sale of specific goods which have perished without the knowledge of either party, the contract is void. Perishing does not require literal destruction.  If goods are no longer usable due to serious damage, they may be regarded as having perished.

This is equivalent to the principles of common mistake.   The parties have made a fundamental mistake as to the existence of the subject matter.  No contract exists and the parties are entitled to restitution of monies paid.

Where there is an agreement to sell specific goods and the goods perish without the fault of either party before the risk passes to the buyer, the agreement is avoided.  The provision only applies where the risk has not passed to the buyer.  The default position is that title and risk in ascertained goods pass on making the contract.  The principle applies only provided that neither party is at fault.


Passing of Risk in Consumer Sales

The above provisions do not apply where the buyer deals as a consumer and the seller sends the goods to the buyer. In this case, the goods remain at the seller’s risk until the buyer or a person indicated by the buyer for that purpose acquires physical possession of the goods.

The latter provision as to delivery to a nominated person, does not apply where the goods are delivered to a carrier whose is commissioned by the buyer for the purpose of carrying the goods and which as not proposed by the seller for that purpose. In this case, the goods are at the buyer’s risk upon delivery to the carrier. The above does not limit the rights of the buyers or the liability of the carrier in respect of the goods.


References and Sources

Irish Texts

Brian Doolan, A Casebook on Irish Business Law (1989)

Henry Ellis, Modern Irish Commercial and Consumer Law (2004)

Michael Forde, Commercial Law, 3rd Edition (2005)

Linehan, Irish Business and Commercial Law (1995)

McCormack, Reservation of Title 1990 (1994)

Patrick O’Reilly (ed.), Commercial and Consumer Law  (Statutes) (2000)

Sean Quinn (ed.), Statutes Revised on Commercial Law, 1695-1913 (1994)

Fidelma White, Commercial Law (2003) (2nd Ed 2012)

Fidelma White, Commercial and Economic Law In Ireland (2011)

Vincent Grogan, Thelma King and Edward J. Donelan, Sale of Goods and Supply of Services: A Guide to the Legislation (Law Society of Ireland, 1983)

Paul Anthony McDermott, Contract Law (Butterworths, Dublin, 2001)

2011 Report of the Sales Law Review Group,

UK texts

Atiyah and Adam’s Sale of Goods 13th Ed (2016)

Bridge, Benjamin’s Sale of Goods 9th Ed (2015);

Bridge, The Sale of Goods 3rd Ed (2014)

Blackstones’ Statutes Commercial and Consumer Law 2017

Goode on Commercial Law 5th Ed 2017

Legislation

Sale of Goods Act 1893

Sale of Goods and Supply of Services Act 1980

Electronic Commerce Act 2000

Criminal Justice (Theft and Fraud Offences) Act 2001 (50/2001)

International Carriage of Goods by Road Act 1990 (13/1990)

European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (S.I. No. 484 of 2013)

European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003 (S.I. No. 11 of 2003)