HKLII

Hong Kong Law Reform Commission
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Preface

1. The Law Reform Commission issued a report on Sale of Goods and Supply of Services in February 1990.[1] Based on the recommendations in the report, three ordinances namely, the Sale of Goods (Amendment) Ordinance 1994,[2] the Supply of Services (Implied Terms) Ordinance (Cap 457) and the Unconscionable Contracts Ordinance (Cap 458) were enacted in 1994.

2. The Sale of Goods (Amendment) Ordinance 1994 amended the Sale of Goods Ordinance (Cap 26). The major amendments included a new definition of "merchantable quality", and clarification of a buyer's right to reject defective goods where he has not had a reasonable opportunity to examine the goods, even after a sub-sale of the goods. The Unconscionable Contracts Ordinance (Cap 458) empowers courts to give relief in contracts for sale of goods or the supply of services where the contracts are found to be unconscionable.

3. The Supply of Services (Implied Terms) Ordinance (Cap 457) makes a contract for the supply of services subject to certain statutory implied terms. A contract for the supply of services is defined as a contract under which a person agrees to carry out a service, whether or not goods are also –

(i) transferred or to be transferred; or
(ii) bailed or to be bailed by way of hire,


under the contract, and whatever is the nature of the consideration for which the services are to be carried out.[3]

4. The effect of this definition is that the "service" element of contracts for services is caught by Cap 457 whether or not there is any "goods" element accompanying the supply of the service. The implied terms under Cap 457 (as to care and skill, time for performance and consideration) apply only to the "service" element under such contracts. Cap 26 does not apply to the goods element (if any) under such contracts because that Ordinance only covers goods sold under a contract of sale. In other words, there is no statutory implied term which covers the "goods" element where goods are supplied as part of a contract for the supply of services.

5. Apart from contracts for the supply of services with ancillary goods mentioned above and contracts of sale, there are other types of contracts for the supply of goods under which property or possession of goods passes. Indeed, there are various types of contracts for the supply of goods (other than sale). For example, there are contracts of barter, contracts of hire, hire purchase agreements, etc. However, as regards implied undertakings by suppliers of goods, they are implied under Cap 26 only in contracts of sale but not other types of contracts for the supply of goods. Hence there are no statutory implied undertakings for contracts for work and materials, contracts of barter, contracts of hire, hire purchase agreements, etc. These contracts are regulated by common law. Although academics and the courts have supported the implication of those obligations in contracts for supply of goods (other than sale), we will see in the following chapters that there remain significant gaps in the law.

Terms of reference

6. The Secretary for Justice and the Chief Justice have thought it appropriate to review the law governing contracts for the supply of goods and they have referred the topic to the Law Reform Commission with the following terms of reference:

"To review the law governing contracts for the supply of goods and to consider such reform as may be necessary".


7. On 4 June 1998, the Law Reform Commission appointed a sub-committee to examine the current state of law and to make recommendations. The members of the Sub-committee are:

Hon Mr Justice Bokhary PJ

(Chairman)

Court of Final Appeal

Mr Eric Cheung

Assistant Professor

Department of Professional Legal Education

University of Hong Kong

Mr Joseph Fok

Senior Counsel

Mr Paul Kent

Assistant Professor

Department of Building & Real

Estate

Hong Kong Polytechnic University

Mr K M Li

Deputy Chief Executive

Consumer Council

Mr Richard Luk

Principal Assistant Secretary

Economic Services Bureau

Mr David Murray

Group Legal Manager

The Dairy Farm Group

Mr Joseph Poon

Senior Manager,
Marketing & Planning
Hong Kong & Shanghai Banking Corp

Mr Adrian Wong

Consultant
Messrs Chao & Chung

Mr Byron Leung

Secretary to the Sub-committee


The consultation process

8. The Supply of Goods Sub-committee published a consultation paper on Contracts for the Supply of Goods (the "Consultation Paper") in December 2000, with a consultation period until the end of February 2001. The Sub-committee received responses to the Consultation Paper from those listed at Annex 1. We are grateful to all those who responded to the Consultation Paper.

9. The Consultation Paper was in general well received by those who commented upon it. To name a few, the broad thrust of the proposals in the Consultation Paper was supported by the Hong Kong Bar Association and the Judiciary Administrator’s Office, subject to comments on particular recommendations. Both the French Chamber of Commerce and Industry in Hong Kong and the Consumer Council welcome the proposed broadening of the statutory protection for consumers.

10. The Chartered Institute of Purchasing & Supply believes that the proposals will improve the Sale of Goods Ordinance (Cap 26), while the Chinese Manufacturers’ Association of Hong Kong thinks that most of the recommendations will help bridge gaps in the existing law and improve the business environment by enhancing the rationality and clarity of the legislation.

11. Nevertheless, the respondents do have some specific comments and observations on both the recommendations and the issues discussed in the Consultation Paper. We will deal with each of them in the following chapters.

Layout of this Report

12. This Report is the result of careful consideration of the initial recommendations in the Consultation Paper and the responses we received to that paper. Chapters 1 – 8 are mainly concerned with contracts for the supply of goods other than sale and in particular, with the terms to be implied in them. There are various types of terms which can be implied in contracts for the supply of goods. In these chapters, we only discuss the implied obligations of suppliers in respect of the goods. We review the existing law on supply of goods in Hong Kong and then consider the positions of other jurisdictions to examine how the Hong Kong law on supply of goods may be improved.

13. We discuss in Chapter 1 the existing provisions regulating implied terms in contracts for sale of goods and the need for further legislation for other kinds of supply of goods (the "Recommended Legislation"). In Chapter 2, we explain the expression "contracts for the supply of goods". In Chapters 3 to 6, we discuss the implied terms to be put into the Recommended Legislation namely, implied terms about title, correspondence with description, implied terms about quality and fitness, and correspondence with the sample. We then discuss the remedies for breaches of the statutory implied terms in the Recommended Legislation in Chapter 7. In Chapter 8, we discuss the exclusion of liability and the control of it.

14. In Chapter 9, we discuss various issues concerning contracts for the sale of goods, including sale of goods forming part of a bulk, right of partial rejection, the market overt rule, remedies for delivery of wrong quantity, acceptance of goods and a reasonable opportunity of comparing the bulk with the sample. The relevant provisions in other jurisdictions on these matters prompt the discussion.

15. We refer to various pieces of legislation in this report. For easy reference, we adopt the abbreviations at Annex 2 for some of them which are frequently referred to.

Acknowledgements

16. We wish to express our particular thanks to the Consumer Council for providing the statistics at Annex 4 and Annex 5, and to the following persons whose advice and assistance have proved invaluable:

[1] (Topic 21).

[2] Ord No 85 of 1994.

[3] See section 3 of Cap 457.