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Hong Kong Law Reform Commission |
3.1 In this and the next three chapters, we discuss the implied terms
to be included in the Recommended Legislation for contracts for supply of goods
(other than sale). There are four such implied terms and we discuss one in each
chapter in the following sequence:
(a) implied terms about title, etc – Chapter 3;
(b) correspondence with description – Chapter 4;
(c) implied terms about quality or fitness – Chapter 5;
(d) supply by sample – Chapter 6.
3.2 In this
chapter, we first examine the implied terms about title in section 14 of Cap 26.
Then, in respect of these implied terms, we examine the three types of contracts
for supply of goods recommended in Chapter 2, namely contracts for transfer of
property in goods, contracts of hire and hire purchase
agreements.
3.3 For each of these three types of contracts, we first
examine the common law position in Hong Kong and then the positions in
Australia, New Zealand and England and Wales. We also examine the relevant
comments of academics and overseas law reform bodies.
3.4 No respondent
has made any specific comment on the issues discussed in this chapter in the
Consultation Paper, save for the Hong Kong Association of Banks, who commented
on the concept of "linked credit providers" in respect of hire purchase
agreements. After considering those comments, we conclude that there is no need
to modify the recommendation in respect of hire purchase agreements proposed in
the Consultation Paper. The recommendations in this Report for each of the
three types of contracts are as follows:
(a) contracts for transfer of property in goods – Recommendation 6;
(b) contracts of hire – Recommendation 7;
(c) hire purchase agreements – Recommendation 8.
3.5 The undertakings as to title are set out in section 14 of
Cap 26, which reads as follows:
"(1) In every contract of sale, other than one to which subsection (2) applies, there is –
(a) an implied condition on the part of the seller that in the case of the sale, he has a right to sell the goods, and in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass; and
(b) an implied warranty that the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made and that the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known.
(2) In a contract of sale, in the case of which there appears from the contract or is to be inferred from the circumstances of the contract an intention that the seller should transfer only such title as he or a third person may have, there is –
(a) an implied warranty that all charges or encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the contract is made; and
(b) an implied warranty that neither –
(i) the seller; nor
(ii) in a case where the parties to the contract intend that the seller should transfer only such title as a third person may have, that person; nor
(iii) anyone claiming through or under the seller or that third person otherwise than under a charge or encumbrance disclosed or known to the buyer before the contract is made,
will disturb the buyer's quiet possession of the goods."
3.6 There
are two sets of undertakings to provide for two situations. The first is where
a seller agrees to transfer a good title to the goods (the usual case). The
second is where a seller only agrees to transfer such title as he or a third
person may have. In the first case, there is an implied condition that
the seller has the right to sell the goods at the time of sale or, in the case
of an agreement to sell, that he will have a right to sell the goods at the time
when property is to pass.[105]
There are also implied warranties that the goods are free and will remain
free from any charge or encumbrance not disclosed or known to the buyer before
the contract is made; and that the buyer will enjoy quiet possession of the
goods except in respect of disturbance by the owner or other person entitled to
the benefit of any charge or encumbrance so disclosed or so
known.[106]
3.7 In the
second case, there is only an implied warranty that all charges or
encumbrances known to the seller and not known to the buyer have been disclosed
to the buyer before the contract is
made.[107] There is a further
implied warranty that the buyer will enjoy quiet possession of the
goods.[108]
3.8 As discussed in Chapter 2, contracts for the transfer of property
in goods cover various types of contracts and the two major types are barter and
contracts for work and materials. In the discussion in this chapter and the
next three chapters, these two types of contracts are singled out for the sake
of discussion. But the implied terms to be recommended should apply generally
to all kinds of contracts for the transfer of property in goods.
3.9 Before the enactment of the Sale of Goods Act 1893, it was
generally supposed that at common law the obligations of a supplier of goods
were the same as those of a seller of
goods.[109] Accordingly, as the
Sale of Goods Act 1893 was to put the principles of law derived from the cases
into a statutory form,[110] the
Sale of Goods Act 1893 in its original version should also reflect the legal
position of contracts of barter. As Cap 26 was modelled on the Sale of Goods
Act 1893, Cap 26 in its original version should therefore also reflect the legal
position of contracts of barter in Hong Kong.
3.10 There is a view that
"apart from statute... the rules of law relating to sales apply in general to
contracts of barter or exchange; but the question has been by no means fully
worked out."[111] It would
seem sensible that the terms to be implied in such contracts should be
enumerated and made plain in legislation. Before making any recommendation, we
will first turn to the experiences in other jurisdictions.
3.11 The problem with contracts for work and materials is, to a large
extent, the same as that of barter. The obligations of a supplier at common law
in respect of materials supplied were generally regarded as the same whether the
contract was classified as one of sale or of work and materials. As to the
obligations of the supplier, the main difference between a contract for work and
materials and a contract of sale is that terms are only implied into the former
in accordance with the general law of contract and not under
Cap 26.[112]
3.12 The obligation of a supplier of materials, under such a contract,
was considered in detail in Young & Marten Ltd v McManus Childs
Ltd.[113] In this
case, arguments were put by members of the House of Lords in favour of
eliminating any differences between the obligations of a supplier of materials
under a contract for work and materials and those under a contract of sale. One
argument was that a supplier would normally be able to pass his liability on to
the person from whom he purchased the materials in question and so would be no
worse off, whereas the person supplied would probably have no remedy if he were
denied a remedy in contract against the person supplying him.
3.13 The
House of Lords held that the conditions or warranties to be implied in contracts
for work and materials should be the same as those for contracts of sale. Lord
Wilberforce said in relation to the contract for work and materials in
question:
"neither analysis nor authority supports the suggestion that, other circumstances apart, the conditions or warranties to be implied should be any different from those which would have arisen had this contract been for sale simpliciter."[114]
3.14 Lord
Upjohn said such differences would be "most unsatisfactory, illogical, and
indeed a severe blow to any idea of a coherent system of common law ...."
Lord Pearce echoed:
"The cases which preceded and crystallised in the Sale of Goods Act, 1893, do not, as far as conditions or warranties are concerned, seem to show any clear consciousness of a difference in principle between a sale of goods and a contract for labour and materials."[115]
3.15 It would therefore appear that the terms implied in a contract
for work and materials are, so far as the materials are concerned, no less
stringent than those implied in a contract of sale. However, there are few
direct cases on the undertaking as to title of a supplier under a contract for
work and materials, but based on the above discussion, it is likely that a term
similar to that for a contract of sale would be implied. Despite all these, to
enhance clarity, overall certainty and access to the law, it would seem
preferable to have the rules set out in legislation.
3.16 Section 69(1)(a) of the 1974
Act[116], which is similar to the
sale of goods legislation at the State and Territory
level,[117] contains implied
undertakings as to title, encumbrances and quiet possession:
"(1) In every contract for the supply of goods by a corporation to a consumer, other than a contract to which subsection (3) applies, there is:
(a) an implied condition that, in the case of a supply by way of sale, the supplier has a right to sell the goods, and, in the case of an agreement to sell or a hire-purchase agreement, the supplier will have a right to sell the goods at the time when the property is to pass;
(b) an implied warranty that the consumer will enjoy quiet possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any charge or encumbrance disclosed or known to the consumer before the contract is made; and
(c) in the case of a contract for the supply of goods under which the property is to pass or may pass to the consumer - an implied warranty that the goods are free, and will remain free until the time when the property passes, from any charge or encumbrance not disclosed or known to the consumer before the contract is made.
(2) A corporation is not, in relation to a contract for the supply of goods, in breach of the implied warranty referred to in paragraph (1)(c) by reason only of the existence of a floating charge over assets of the corporation unless and until the charge becomes fixed and enforceable by the person to whom the charge is given.
(3) In a contract for the supply of goods by a corporation to a consumer in the case of which there appears from the contract or is to be inferred from the circumstances of the contract an intention that the supplier should transfer only such title as he or she or a third person may have, there is:
(a) an implied warranty that all charges or encumbrances known to the supplier and not known to the consumer have been disclosed to the consumer before the contract is made; and
(b) an implied warranty that:
(i) the supplier;
(ii) in a case where the parties to the contract intend that the supplier should transfer only such title as a third person may have, that person; and
(iii) anyone claiming through or under the supplier or that third person otherwise than under a charge or encumbrance disclosed or known to the consumer before the contract is made;
will not disturb the consumer's quiet possession of the goods."
3.17 With regard to the undertaking as to the right to pass title,
section 69(1)(a) only covers sale, agreements to sell and hire purchase
agreements, and implies a condition that a supplier has a right to sell or will
have a right to sell the goods at the time when the title is to pass. It does
not cover other types of contracts under which title of goods is passed such as
barter and other types of contracts for the transfer of property in
goods.
3.18 The implied warranties of quiet possession and freedom from
encumbrance in section 69(1)(b) and (c) cover all types of "supply" of goods as
defined in section 4, including sale, exchange, lease, hire and hire
purchase. Similarly, in the case of a transfer of limited title, the implied
warranties of quiet possession and disclosure of known charges or encumbrances
to the transferee in section 69(3) cover all types of "supply" of goods as
defined. As mentioned in Chapter 2, section 74 separately provides for
some implied terms for contracts for work and materials. But it does not
provide for undertakings as to title, quiet possession or freedom from
encumbrance.[118]
3.19 In substance, section 69(1) and (3) is similar to section 14
of Cap 26. There is no equivalent in Cap 26, however, to section 69(2) of
the 1974 Act, which makes it clear that a floating charge over the assets of the
corporation will not by itself be in breach of the implied warranty as to
freedom from encumbrance in subsection (1)(c).
3.20 As the 1974 Act only applies to the supply of goods to consumers,
the supply of goods by way of barter and contracts for work and materials to
non-consumers is governed by common law. For barter, no direct authority can be
found. However, the Australian court may follow the views of
Blackburn[119] and
Chalmers[120] to the effect that
the common law obligations of a seller apply to a supplier under a contract of
barter. No direct authority can be found on undertakings as to title in
contracts for work and materials, but terms as to fitness for purpose and good
quality have been implied in this type of
contract.[121] Therefore, it is
likely that the Australian court may also imply an undertaking as to title
similar to that implied in sale of goods contracts.
3.21 Section 5 of the 1993
Act[122], which is similar to the
equivalent provision in the New Zealand Sale of Goods Act
1908,[123] provides for a
guarantee as to title in the supply of goods in trade to a consumer. It reads
as follows:
"(1) Subject to section 41 of this Act, the following guarantees apply where goods are supplied to a consumer:
(a) That the supplier has a right to sell the goods; and
(b) That the goods are free from any undisclosed security; and
(c) That the consumer has the right to undisturbed possession of the goods, except in so far as that right is varied pursuant to –
(i) A term of the agreement for supply in any case where that agreement is a hire purchase agreement within the meaning of the Hire Purchase Act 1971; or
(ii) A security, or a term of the agreement for supply, in respect of which the consumer has received –
(A) Oral advice, acknowledged in writing by the consumer, as to the way in which the consumer's right to undisturbed possession of the goods could be affected, sufficient to enable a reasonable consumer to understand the general nature and effect of the variation; and
(B) A written copy of the agreement for supply or security, or a written copy of the part thereof which provides for the variation.
(2) A reference in subsection (1)(a) of this section to a 'right to sell' goods means a right to dispose of the ownership of the goods to the consumer at the time when that ownership is to pass.
(3) An 'undisclosed security' referred to in this section means any security that was neither disclosed to the consumer in writing before he or she agreed to the supply nor created by or with the express consent of the consumer.
(4) Nothing in subsection (1)(a) or (1)(b) of this section shall apply in any case where the goods are only hired or leased.
(5) Where the goods are only hired or leased, the guarantee set out in subsection (1)(c) of this section shall confer a right to undisturbed possession of the goods only for the period of the hire or lease.
(6) Part II of this Act gives the consumer a right of redress against the supplier where the goods fail to comply with any guarantee in this section."
3.22 Where goods are supplied to a consumer, the supplier guarantees
that he has right to sell the goods (section 5(1)(a)). According to section
5(2), this means that the supplier has a right to dispose of the ownership of
the goods to the consumer at the time when that ownership is to pass.
Therefore, it is clear that the guarantee as to a right to sell applies to
sales, agreements to sell, and hire purchase. It is also arguable that this
guarantee also applies to "supply" of goods as defined in section 2 (including
gift, sale, exchange, lease, hire and hire purchase and by virtue of section 15,
contracts for work and materials) so long as there is passing of ownership of
the goods. In other words, it applies to gifts, exchanges, and contracts for
work and materials. However, it is also arguable that the word "sell" in "right
to sell" limits itself to sales.
3.23 The guarantee as to freedom from undisclosed security in
section 5(1)(b) applies to the "supply" of goods as defined, including
exchange and contracts for work and materials but not hire and lease according
to section 5(4). "Undisclosed security"
means[124] any security that was
neither disclosed to a consumer in writing before he or she agreed to the supply
nor created by or with the express consent of the consumer. This is similar to
the corresponding warranty in section 14(1)(b) of Cap 26.
3.24 As to the guarantee regarding undisturbed possession of the goods
under section 5(1)(c), this applies to the "supply" of goods as defined
including exchange and contracts for work and materials. This right of
undisturbed possession can be varied following the required formalities in
section 5(1)(c)(i) and (ii). These required formalities are not set out in
the equivalent warranty in section 14 of Cap 26.
3.25 As the 1993 Act only applies to the supply of goods to a
consumer, the supply of goods by way of barter and contracts for work and
materials to non-consumers is governed by common law. In New Zealand, the law
relating to barter is undeveloped. However, the court "seems inclined to
deal with such contracts as if they were analogous to contracts of
sale".[125] No direct
authority can be found on the implied terms as to title in contracts for work
and materials. However, terms as to fitness for purpose and good quality have
been implied.[126] Therefore, the
New Zealand court may imply a term concerning title similar to that implied in
sale of goods contracts.
3.26 A "contract for the transfer of goods" is
defined.[127] Implied terms as to
title in contracts for the transfer of property in goods are stipulated in
section 2 of the 1982 Act which is similar to section 12 of the 1979
Act[128]. Section 2 reads as
follows:
"(1) In a contract for the transfer of goods, other than one to which subsection (3) below applies, there is an implied condition on the part of the transferor that in the case of a transfer of the property in the goods he has a right to transfer the property and in the case of an agreement to transfer the property in the goods he will have such a right at the time when the property is to be transferred.
(2) In a contract for the transfer of goods, other than one to which subsection (3) below applies, there is also an implied warranty that -
(a) the goods are free, and will remain free until the time when the property is to be transferred, from any charge or encumbrance not disclosed or known to the transferee before the contract is made, and
(b) the transferee will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known.
(3) This subsection applies to a contract for the transfer of goods in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the transferor should transfer only such title as he or a third person may have.
(4) In a contract to which subsection (3) above applies there is an implied warranty that all charges or encumbrances known to the transferor and not known to the transferee have been disclosed to the transferee before the contract is made.
(5) In a contract to which subsection (3) above applies there is also an implied warranty that none of the following will disturb the transferee's quiet possession of the goods, namely –
(a) the transferor;
(b) in a case where the parties to the contract intend that the transferor should transfer only such title as a third person may have, that person;
(c) anyone claiming through or under the transferor or that third person otherwise than under a charge or encumbrance disclosed or known to the transferee before the contract is made."
3.27 In
section 2(1), there is an implied condition that the transferor of goods has a
right to transfer the property and, in the case of an agreement to transfer, he
will have such a right when the property is to be transferred. There are
warranties of freedom from encumbrance and quiet possession except when the
charge or encumbrance has been disclosed to the transferee (section 2(2)). As
to a transfer of limited title, there are also warranties of disclosure of known
charges or encumbrances to the transferee, and of quiet possession save as to
charges or encumbrances disclosed to the transferee (section
2(3)-(5)).
3.28 The implied terms provided in section 2 are similar to
those in section 12 of the 1979 Act which in turn, are similar to those in
section 14 of Cap 26 in Hong Kong.
3.29 As discussed, the statutory implied undertakings as to title for
contracts of exchange in Australia (consumer transactions), contracts of
exchange and contracts for work and materials in New Zealand (consumer
transactions), and contracts for the transfer of property in goods in England
and Wales (both consumer and non-consumer transactions) mainly follow the
equivalent provisions in those countries' respective sale of goods legislation.
Even for non-consumer contracts of exchange and contracts for work and materials
in Australia and New Zealand, the implied undertakings as to title are also no
less than those in sale of goods contracts.
3.30 In addition, the common
law position on implied undertakings as to title in contracts of barter and
contracts for work and materials in Hong Kong are no less stringent than those
implied in a contract of sale. This is in line with what has been stated in
Chapter 1 that the same implied terms should be stipulated for all types of
contracts for the supply of goods for the sake of consistency. Therefore, to
achieve greater clarity, overall certainty and easier access to the law, it
would be preferable to set out the implied terms as to title in the Recommended
Legislation, along the lines of the implied undertakings as to title in section
14 of Cap 26.
3.31 If the intention of the parties is to transfer only limited title
to the transferee, there should be implied warranties as to disclosure of
charges or encumbrances which are known to the transferor but not known to the
transferee before the agreement is made, and as to quiet possession of the
transferee. This may be either the supplier's own limited title or that of a
third party. This is in line with section 14 of Cap 26, the 1974 Act
and the 1982 Act.
3.32 Section 69(2) of the 1974 Act makes it clear that the existence
of a floating charge over the assets of the corporation will not by itself
breach the implied warranty as to freedom from encumbrance in subsection (1)(c)
unless and until the charge becomes fixed and crystallised. This provision
protects a supplier from being accused of a "technical" breach of the implied
warranty, since before a floating charge crystallises the chargor (supplier) can
carry on its business as usual. There is no similar provision in section 2 of
the 1982 Act, section 5 of the 1993 Act or section 14 of Hong Kong's Cap
26. We do not therefore recommend a similar provision in Hong Kong for
contracts for the supply of goods (other than sale).
3.33 Section
5(1)(c)(i) and (ii) of the 1993 Act provides that the right of undisturbed
possession can be varied by following certain formalities, including the giving
to a consumer of an oral advice (with receipt acknowledged in writing by the
consumer) as to how his rights will be affected, and the giving of a written
copy of the agreement or the part thereof providing for the variation. The
advice must be sufficient to enable a reasonable consumer to understand the
nature and effect of the variation. These formalities may not only create
obstacles for business efficiency, but also be a breeding ground for litigation.
We think a balance should be struck between providing flexibility to suppliers
on the one hand, and maintaining business efficiency on the other. Furthermore,
these formalities grant a new way for suppliers to limit their liabilities in
respect of the implied undertakings as to quiet possession. There is no similar
provision in section 2 of the 1982 Act and section 14 of Cap 26 in Hong
Kong. In this connection, such detailed formalities are not recommended in Hong
Kong for contracts for the supply of goods (other than sale).
3.34 The 1982 Act covers both consumer and non-consumer transactions,
while the 1974 Act and the 1993 Act cover only consumer transactions. However,
the implied undertakings as to title in non-consumer contracts of exchange and
contracts for work and materials in Australia and New Zealand at common law are
also no less than those in sale of goods contracts. In any event, the Hong Kong
common law position on implied undertakings as to title does not differentiate
between consumer and non-consumer transactions. Cap 26 covers both
consumer and non-consumer transactions. To achieve consistency with the sale of
goods provisions, we therefore propose that non-consumers should also have the
benefit of the protection of the implied undertakings as to title in the
Recommended Legislation.
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Recommendation 6
We recommend that implied terms about title should be provided for in
consumer and non-consumer contracts for transfer of property in goods similar to
those in section 14 of Cap 26, namely:
(a) an implied condition that a transferor has a right to transfer the
property and, in the case of an agreement to transfer, that he will have such a
right at the time when the property is to be transferred;
(b) implied warranties that the goods are free and will remain free from
charges or encumbrance not disclosed or known to the transferee before the
contract is made; and that the transferee will enjoy quiet possession, save as
to encumbrances disclosed or known to the transferee; and
(c) in the case of a transfer of limited title, implied warranties of
disclosure of encumbrance to the transferee and of quiet possession by the
transferee.
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3.35 A contract of hire of goods does not involve the transfer of
title but of possession only. From the point of view of a hirer, he does not
care who the actual owner[129] is
so long as his possession of the goods will not be disturbed by the true owner
or any person claiming through the owner, and he will not be sued by such
person. Since it is not relevant to a hiring of goods whether a bailor is the
owner of the goods, an implied undertaking as to title to the goods will not
usually be required. But other implied terms are relevant, such as having the
right to hire out the goods and a hirer's entitlement to quiet possession during
the period of
hire.[130]
3.36 Section 69(1)(b) of the 1974 Act provides for an implied
warranty of quiet possession in respect of contracts of hire:
"an implied warranty that the consumer will enjoy quiet possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any charge or encumbrance disclosed or known to the consumer before the contract is made ..."
3.37 The
implied condition as to a right to sell in subsection (1)(a) only applies to
sales, agreements to sell and hire purchase agreements. The implied warranty as
to freedom from encumbrance in subsection (1)(c) only applies to the "supply
of goods under which the property is to pass or may pass", while
subsection (3) applies to transfers of limited title. Therefore, neither
of these provisions applies to contracts of hire.
3.38 As the 1974 Act
only applies to consumer transactions, non-consumer transactions are governed by
common law. Regarding a bailor's right to hire out goods at common law, the
position is less clear since there is no direct
authority.[131] But there is a
common law warranty giving a hirer a right to quiet possession for the period of
hire subject to charges or encumbrances disclosed to the hirer before a contract
is made.[132]
3.39 Section 5 of the 1993 Act expressly points out that only the
guarantee as to the right of undisturbed possession applies to a contract of
hire. Subsections (4) and (5) are as follows:
"(4) Nothing in subsection (1)(a) or (1)(b) of this section shall apply in any case where the goods are only hired or leased.
(5) Where the goods are only hired or leased, the guarantee set out in subsection (1)(c) of this section shall confer a right to undisturbed possession of the goods only for the period of the hire or lease."
3.40 Subsection
(1)(c) provides for a guarantee of the right to undisturbed possession and
subsection (5) provides that such guarantee is only for the period of
hire.
3.41 As the 1993 Act only applies to consumer transactions,
non-consumer transactions are governed by common law. In a contract of hire,
there is an implied warranty that a hirer will enjoy quiet possession for the
period of hire save as to charges or encumbrances disclosed or known to him
before the contract is made.[133]
Such an implied term does not affect the right of the bailor to repossess the
goods under an express or implied term of the
contract.[134]
3.42 Section 7 of the 1982 Act provides for the implied term as to a
right to transfer possession in respect of a contract of hire. It reads as
follows:
"(1) In a contract for the hire of goods there is an implied condition on the part of the bailor that in the case of a bailment he has a right to transfer possession of the goods by way of hire for the period of the bailment and in the case of an agreement to bail he will have such a right at the time of the bailment.
(2) In a contract for the hire of goods there is also an implied warranty that the bailee will enjoy quiet possession of the goods for the period of the bailment except so far as the possession may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance disclosed or known to the bailee before the contract is made.
(3) The preceding provisions of this section do not affect the right of the bailor to repossess the goods under an express or implied term of the contract."
3.43 As
a hirer is a bailee and he is only to obtain the possession, use and enjoyment
of the goods but not the property of the goods, no term as to title is implied.
There is however an implied condition that a bailor has a right to
transfer possession of the goods by way of hire for the period of bailment, or
in the case of an agreement to bail, he will have such a right at the time of
the bailment (section 7(1)). Section 7(2) provides for a warranty
that a bailee will enjoy quiet possession of the goods for the period of the
bailment.
3.44 As there is no transfer of title in a contract of hire, an
implied term as to the title of a bailor is not needed. However, it would seem
sensible to have an implied term that a bailor has a right to hire out the goods
for the period of hire and, in an agreement to hire, that he will have that
right at the time of hire. Otherwise, a hirer may be in breach of a third
party's rights and run the risk of being
sued.[135] There is no such an
implied term in the 1974 Act, nor in the 1993 Act. Section 7(1) of the 1982 Act
provides for such an implied term which, as discussed, is sensible. The
existing common law position in Hong Kong is uncertain on this point.
Clarification by providing for this implied term in the Recommended Legislation
is therefore desirable.
3.45 There is an implied term of quiet possession in section 69(1)(b)
of the 1974 Act, section 5(1)(c) in the 1993 Act and section 7(2) of the 1982
Act. Under the existing common law position of Hong Kong, a hirer is entitled
to quiet possession during the period of hire. However, it would seem desirable
to spell this out clearly in legislation. In both the 1974 Act and the 1982
Act, the right to quiet possession is subject to any charges or encumbrances
disclosed or known to a hirer before the contract is made. Much more detailed
formalities are stipulated in section 5(1)(c)(i) and (ii) of the 1993 Act. For
the reasons discussed above, we suggest that such detailed formalities are
neither necessary nor desirable. This right to quiet possession is to protect a
hirer against being disturbed by the bailor or any person with a better right to
possession of the goods, but not against being disturbed by thieves nor against
lawful repossession according to the terms of the contract of hire.
3.46 The implied term as to freedom from encumbrance is expressly
excluded from applying to a contract of hire by section 5(4) of the 1993 Act and
impliedly excluded by section 69(1)(c) of the 1974
Act.[136] No provision is made in
section 7 of the 1982 Act. Professor N E
Palmer[137] is of the view that a
"hirer's security of title and possession are markedly inferior to
those which govern transactions where property passes". He then
said, "[the] inferiority concerns the lack of any statutory term specially
implied into contracts of hire that the goods are free from any charge or
incumbrance not disclosed or known to the hirer".
3.47 It must
be pointed that the implied term as to freedom from encumbrance is not strictly
necessary for the protection of a hirer provided that a bailor has the right to
hire out the goods and that the hirer enjoys quiet possession during the period
of hire. Instead, such a term may create too much difficulty for a bailor or
his business. For example, a bailor may need to charge the goods in question to
finance his business or he may be in the process of acquiring the goods on hire
purchase terms. In such situations, the inclusion of this implied term might be
too onerous on the bailor. We therefore consider it best not to adopt the
implied term as to freedom from encumbrance for contracts of hire in Hong Kong,
even though there is such an implied warranty in section 14 of Cap 26.
3.48 The 1982 Act covers both consumer and non-consumer transactions
while the 1974 Act and the 1993 Act cover only consumer transactions. There is
no differentiation between consumer and non-consumer transactions under the Hong
Kong common law on implied terms for contracts of hire. Furthermore, Cap 26
also covers both consumer and non-consumer transactions. We accordingly take
the view that non-consumer contracts of hire should also have the benefit of the
protection of the implied terms.
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Recommendation 7
We recommend that implied terms as to a right to transfer possession
should be provided for consumer and non-consumer contracts of hire, similar to
those in section 14 of Cap 26, namely:
(a) an implied condition that a bailor has a right to hire out the goods
for the period of hire and, in the case of an agreement to hire, he will have
such a right at the time of hire;
(b) an implied warranty that the hirer will have quiet possession of the
goods for the period of hire save as to charges or encumbrances disclosed or
known to the hirer before the contract of hire is made; and
(c) the above implied terms should not affect the right of the bailor to
repossess the goods under the terms of the contract of hire.
|
3.49 In Hong Kong, hire purchase agreements are governed by common
law. At common law, there is an implied condition that the person letting the
goods has, or will have at the time of delivery of the goods, either the title
to the goods or a right to dispose of
them.[138] The common law rule
that a bailee is estopped from disputing his bailor's title does not apply to
hire purchase. This is because a hirer's option to purchase enables him to
assume that the bailor has title or a right to dispose of the
goods.[139]
3.50 There is
also an implied warranty that a bailor will allow a hirer to have peaceful
possession of the goods during the period of
hire.[140] This warranty will be
broken if a hirer's quiet enjoyment is disturbed either by the bailor himself or
by the lawful acts of third parties.
3.51 As to whether there is an
implied warranty that the goods are or shall be free from charges or
encumbrances in favour of a third party, there is no authority at common
law.
3.52 As "supply" is defined in section 4(1) of the 1974 Act to include
"hire purchase", the implied undertakings as to title, encumbrances and quiet
possession in section 69 also apply to hire purchase. According to section
69(1)(a), there is an implied condition, in the case of hire purchase
agreements, that a supplier will have a right to sell the goods when property is
to pass. There are also warranties as to quiet possession and freedom from
encumbrance until the passing of property, other than the charges or
encumbrances disclosed or known to the consumer before a contract is made
(section 69(1)(b) and (c)).
3.53 According to section 69(3), in the case
of a transfer of limited title, there are warranties as to quiet possession, and
that disclosure has been made before the hire purchase agreement is made of any
charges or encumbrances known to a bailor but not known to the bailee. Section
69(2) makes it clear that a floating charge over the assets of the corporation
will not by itself be in breach of the implied warranty as to freedom from
encumbrance in subsection (1)(c).
3.54 As the 1974 Act only applies
to consumer transactions, non-consumer transactions are governed by the relevant
state-legislated hire purchase acts. As discussed in Chapter 2 above, the
States which retain their hire purchase acts are Queensland, Tasmania, Victoria
and Western Australia. The Hire-Purchase Acts of these States imply into
agreements conditions and warranties regarding title and the quality and fitness
of the goods which are analogous to those implied in contracts of sale. There
are implied warranties that a hirer will enjoy quiet possession of the goods,
and that the goods are free from any charge or encumbrance in favour of any
third party.[141] There is also
an implied condition that the owner has the right to sell the goods at the time
property is to pass to the
hirer.[142]
3.55 Sections 73-73B of the 1974 Act govern the respective liability
of dealers (referred to as "suppliers" in these provisions) of goods and credit
providers in respect of defective goods. Section 73 provides for the liability
of credit providers to consumers upon breaches of the statutory implied terms
under sections 70 to 72 of the 1974 Act. It covers various types of financing,
including hire purchase, continuing credit contracts and loan
contracts.[143] Section 73
applies whether goods are supplied by a credit provider or
dealer.[144]
3.56 A credit provider will only incur potential liability for
defective goods where it is a "linked credit provider". A linked credit
provider is defined in section
73(14).[145] Where a consumer
enters into a contract with a linked credit provider for provision of credit,
according to section 73(1), the linked credit provider and supplier are jointly
and severally liable to the consumer for a breach of the statutory implied
terms.[146] A credit provider who
is not a linked credit provider will not be liable for a breach of these implied
terms, but the consumer may recover the amount of the loss or damage from the
supplier.[147]
3.57 Some
defences[148] are available to a
linked credit provider who would otherwise be liable under these provisions. A
linked credit provider will not be liable to a consumer where the credit
provider can prove that the credit was provided as the result of an approach by
the consumer that was not induced by the supplier. It is also a defence for a
credit provider to prove that:
(a) after due inquiry before becoming a linked credit provider of a supplier, the credit provider believed the supplier to be of good reputation as regards the latter's financial standing and business conduct; and
(b) since becoming a linked credit provider, the credit provider has had no reason to suspect that the supplier might not be able to meet liability as it falls due.
3.58 Where
a linked credit provider is unable to make out these defences (for example,
where it has failed to make proper inquiries about a supplier), it will be
jointly and severally liable with the supplier for damages recoverable by a
consumer for breaching the implied terms.
3.59 Even where a linked credit provider is jointly and severally
liable with a supplier, the liability of a linked credit provider to a consumer
is limited to the amount financed under the credit contract together with
interest[149] and the costs
awarded by the court.[150] This
is to limit the consequential losses which a consumer may recover from a linked
credit provider.
3.60 Unless otherwise agreed, a supplier is liable to a
linked credit provider for the loss suffered by the linked credit provider by
virtue of these provisions, including legal costs in defending the
proceedings.
3.61 A consumer must sue both the supplier and linked credit
provider[151] but not just the
linked credit provider alone unless:
(a) the supplier has been dissolved or wound up; or
(b) the court believes that it is not reasonably likely that judgment against the supplier would be satisfied.[152]
3.62 Where
a judgment is entered against a linked credit provider and a supplier, the
judgment cannot be enforced against the linked credit provider alone unless a
written demand on the supplier has remained unsatisfied for 30
days.[153]
3.63 Under section 5(1)(a) of the 1993 Act, there is a guarantee that
a supplier has a right to sell the goods which "means a right to dispose of
the ownership of the goods to the consumer at the time when that ownership is to
pass" (section 5(2)). There is also a guarantee that the goods are free
from undisclosed security which is defined in section 5(3) to mean "any
security that was neither disclosed to the consumer in writing before he or she
agreed to the supply nor created by or with the express consent of the
consumer".
3.64 According to section 5(1)(c), a consumer has a
right to undisturbed possession, subject to variations pursuant to the terms of
the hire purchase agreement in question.
3.65 For non-consumer hire
purchase agreements, section 11 of the Hire Purchase Act 1971 provides
guarantees as to title.
3.66 The statutory implied terms for hire purchase agreements
are provided in the 1973 Act. Section 8 of the 1973 Act provides for the
implied terms as to title and reads as follows:
"(1) In every hire-purchase agreement, other than one to which subsection (2) below applies, there is –
(a) an implied term on the part of the creditor that he will have a right to sell the goods at the time when the property is to pass; and
(b) an implied term that –
(i) the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the person to whom the goods are bailed or (in Scotland) hired before the agreement is made; and
(ii) that person will enjoy quiet possession of the goods except so far as it may be disturbed by any person entitled to the benefit of any charge or encumbrance so disclosed or known.
(2) In a hire-purchase agreement, in the case of which there appears from the agreement or is to be inferred from the circumstances of the agreement an intention that the creditor should transfer only such title as he or a third person may have, there is –
(a) an implied term that all charges or encumbrances known to the creditor and not known to the person to whom the goods are bailed or hired have been disclosed to that person before the agreement is made; and
(b) an implied term that neither –
(i) the creditor; nor
(ii) in a case where the parties to the agreement intend that any title which may be transferred shall be only such title as a third person may have, that person; nor
(iii) anyone claiming through or under the creditor or that third person otherwise than under a charge or encumbrance disclosed or known to the person to whom the goods are bailed or hired, before the agreement is made;
will disturb the quiet possession of the person to whom the goods are bailed or hired.
(3) As regards England and Wales and Northern Ireland, the term implied by subsection (1)(a) above is a condition and the terms implied by subsections (1)(b), (2)(a) and (2)(b) above are warranties."
3.67 Under
section 8(1)(a), there is an implied condition that a bailor will have a right
to sell at the time when the property is to pass. There are also implied
warranties as to freedom from encumbrance and quiet possession save as to
charges or encumbrances disclosed or known to the hirer before the hire purchase
agreement is made (section 8(1)(b)).
3.68 According to section 8(2), in
the case of a transfer of limited title, there are warranties as to quiet
possession and disclosure, before the hire purchase agreement is made, of
charges or encumbrances known to the bailor but not known to the
bailee.
3.69 Similar implied terms as to title, quiet possession and freedom
from encumbrance in hire purchase agreements are found under the common law in
Hong Kong, the 1974 Act, the 1993 Act and the 1973 Act. These implied terms are
also similar to the implied undertakings as to title in section 14 of Cap 26.
Hence, the Consultation Paper recommended that implied terms similar to those in
section 14 of Cap 26 should be provided for hire purchase agreements.
3.70 In Hong Kong, with regard to implied undertakings as to title in
respect of hire purchase agreements, there should be a statutory implied
condition that a bailor will have a right to sell at the time when the property
is to pass. "The time when the property is to pass" is more precise and
accurate than "the time of delivery of the goods" as required at common law in
Hong Kong. This is also in line with section 14 of Cap 26, the 1974 Act and the
1973 Act.
3.71 There should also be an implied warranty as to quiet
possession save as to charges or encumbrances disclosed or known before a hire
purchase agreement is made, similar to the warranties implied at common law in
Hong Kong, in section 14 of Cap 26 and the relevant statutes of other
jurisdictions as discussed above. As to freedom from encumbrance, there is no
authority at common law. But to be in line with section 14 of Cap 26, it would
seem preferable to have a statutory implied warranty that the goods will remain,
until the property is to pass, free from encumbrances not disclosed or known to
the hirer before the agreement is made. There are also such implied terms in
the 1974 Act, the 1993 Act and the 1973 Act.
3.72 If the intention of the parties is to transfer only limited title
to the hirer, there should also be implied warranties as to disclosure of
charges or encumbrances known to the bailor but not known to the hirer before
the agreement is made, and as to quiet possession of the hirer. This may be
either his own limited title or that of a third party. This is in line with
section 14 of Cap 26. There are also such implied terms in the Australian and
English legislation.
3.73 As discussed under the headings "Contracts for transfer of
property in goods" and "Contracts of hire" above, the statutory implied terms as
to title should apply to both consumer and non-consumer hire purchase
agreements. There is no need to have a provision similar to that in section
69(2) of the 1974 Act concerning floating charges. No specific comments were
made on our proposal in the Consultation Paper to include a provision in the
Recommended Legislation modelled on section 14 of Cap 26. We therefore
recommend adopting the proposal.
3.74 There are two main features of section 73 of the 1974 Act.
Firstly, it makes suppliers (dealers) principally responsible for breaches of
the implied terms. Secondly, it limits the liability of credit providers in
various ways. Credit providers will only be liable when they are linked credit
providers as defined.[154] They
have statutory defences, and their liability is limited to the amount financed
and legal costs. They can claim reimbursement from suppliers (dealers) for the
loss suffered. Even in legal proceedings, they are placed in a more favourable
position than that of suppliers. The Consultation Paper concluded that the
concept of linked credit providers was not suitable for Hong Kong. The Hong
Kong Association of Banks favours the concept, however, for the following
reasons:
(a) there should be a distinction between the transactions of hire or hire purchase involving a financial institution and those not involving one. In cases not involving a financial institution, it is fair for a supplier to bear those statutory implied obligations, since both parties, the supplier and the hirer, are acting as a principal in relation to the transaction concerned;
(b) but in cases involving a financial institution, the supplier of the goods, a financial institution, is not a principal in the transaction but only provides finance, and the purpose of the transaction is in effect to provide security over the goods by virtue of an absolute interest. The security is in the form of ownership rather than a conventional mortgage. The real supplier is the dealer, and it is he who should be the one to bear those statutory implied obligations even though there is no contractual relationship between dealers and hirers. It is unfair to put the responsibility on financial institutions. If the same transaction were structured so that the financing of the goods was by way of a loan with security over the goods in favour of the financial institution, there would be no question of the borrower having rights against the financial institution in respect of defects in the goods;
(c) another way by which financial institutions enter into these transactions is by "sale and lease back": a financial institution purchases the goods concerned from an existing owner and then leases them back to that owner by way of hire (leasing) or hire purchase. In this situation, the owner can already claim against the original supplier in respect of defects in the goods. It is unfair that the financial institution should be liable in respect of such defects. The proper recourse is against the original supplier.
One
of our Sub-committee member also supports the concept since it enables a hirer
to sue directly the dealer who is the real supplier of the goods. We can
analyse this issue by examining (a) the liability of credit providers to hirers;
and (b) the liability of dealers to hirers.
3.75 The most common way in which hire purchase is practised in Hong
Kong is in the form of a triangular
transaction.[155] Dealers sell
goods outright to credit providers who, as owners, hire out the goods to
customers under hire purchase agreements. Therefore, hire purchase agreements
are made between hirers and credit providers (not dealers), and it is the credit
providers who are suppliers of the goods. As discussed above, in Hong Kong
credit providers are liable to customers for breaches of the terms implied under
the existing common law since they are usually suppliers of the goods. If as
far as these implied terms are concerned, the recommendations in the
Consultation Paper amount to no more than putting the existing common law into
statutory form, the adoption of the "linked credit providers" concept will
change the existing law by making dealers instead of credit providers
principally liable. This warrants a more cautious balance of the interests of
credit providers, hirers and dealers.
3.76 Where hire purchase agreements are made between dealers and
hirers, the liability of dealers to hirers is the same as the credit providers'
in hire purchase agreements between hirers and credit providers. Where dealers
sell goods to credit providers who enter into hire purchase agreements with
hirers, under existing common law the dealers may still incur
contractual[156] and tortious
liability (for fraud and
negligence)[157] to the hirers if
the goods have defects.
3.77 Goods commonly acquired by way of hire
purchase include cars and office equipment (eg photocopying machines). Even
though dealers are not parties to hire purchase agreements, because of market
forces, they usually undertake to repair defective goods. The present situation
does not therefore raise too much concern.
3.78 As discussed above, under
section 73 of the 1974 Act dealers (referred to as "suppliers") are made
principally liable to hirers, and the liability of linked credit providers is
limited in various ways. We also note that the 1973 Act and the 1993
Act[158] make credit providers
bear the implied obligations. We are of the view that there should be a more
comprehensive review of the relationship of credit providers, hirers and dealers
(and if necessary, other aspects of the hire purchase law) before any decision
is made to introduce special provisions for linked credit providers. We
therefore conclude that the recommendation in the Consultation Paper should
stand, and special provisions for "linked credit providers" should not be
made.
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Recommendation 8
We recommend that implied terms about title similar to those in section
14 of Cap 26 should be provided for consumer and non-consumer hire purchase
agreements, namely:
(a) an implied condition that a bailor will have a right to sell the
goods when the property is to pass;
(b) implied warranties that the goods are free and will remain free from
charges or encumbrances not disclosed or known to the hirer before the agreement
is made; and the hirer will enjoy quiet possession, save as to charges or
encumbrances disclosed or known to the hirer; and
(c) in the case of a transfer of limited title, implied warranties of
disclosure to the hirer of charges or encumbrances known to the bailor but not
the hirer, and of quiet possession by the hirer.
|
[105] Cap 26, s14(1)(a).
[106] S14(1)(b). See
Microbeads A G v Vinhurst Road Markings Ltd [1975] 1 WLR 218 where the
Court of Appeal held that the implied warranty of quiet possession was operative
not only at the time when title in the goods was to pass but afterwards as well.
The relevant provision of the Sale of Goods Act 1893 was amended by the 1973 Act
after the date of the case, but the reasoning of the Court of Appeal applies to
the new wording in the same way as to the
old.
[107] S14(2)(a).
[108] S14(2)(b). The seller, the person whose title the seller purports to sell, or anyone claiming through or under either of them otherwise than under a charge or encumbrance disclosed or known to the buyer before the contract was made, will not disturb the buyer's quiet possession of the goods.
[109] Lord Blackburn, Blackburn's Contract of Sale, 3rd Ed, 1910, at ix.
[110] MacKenzie Chalmers, The Sale of Goods Act 1893, 1894, see the Introduction. Sir MacKenzie Chalmers was the draftsman of the Sale of Goods Act 1893.
[111] Michael Mark, Chalmers Sale of Goods ,18th Ed, 1981, at 82-83.
[112] For the nature of the conditions and warranties implied into a contract for work and materials and the circumstances in which such conditions and warranties will be implied, see Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454, Gloucestershire County Council v Richardson [1969] 1 AC 454.
[113] [1969] 1 AC 454.
[114] [1969] 1 AC 454, at
479B. It must be pointed out that in most other contexts, when the law lords
referred to "warranty", they used it in a generic sense, not as opposed to
"condition", for example, "he would have had a warranty under section 14(2)
[of the Sale of Goods Act]" at 466G, and "section 14(2) of the Sale of
Goods Act, 1893, would have applied and entitled the respondents to succeed in
their claim for breach of warranty that the titles were of good quality" at
471G.
[115] [1969] 1 AC 454,
at 470E.
[116] For the 1974
Act in general, see Chapter 1.
[117] For example, section 17
of the Sale of Goods Act 1923 (NSW): Implied undertaking as to title, etc. In
Australia, there is no sale of goods legislation at the Commonwealth (federal)
level, but each State and Territory has its own sale of goods
legislation.
[118] See Chapter
5 for the text of section
74.
[119] Lord Blackburn,
Blackburn's Contract of Sale, 3rd Ed, 1910, at
ix.
[120] Michael Mark,
Chalmers Sale of Goods, 18th Ed, 1981, at 82-83.
[121] Halsbury's
Laws of Australia, para 40-415, note 1; para 110-2165, notes 8-9. G H
Myers & Co v Brent Cross Service Co [1934] 1 KB 46; Young &
Marten Ltd v McManus Childs Ltd [1969] 1 AC
454.
[122] For the 1993 Act in
general, see Chapter 1.
[123]
Section 14. Implied undertaking as to title,
etc.
[124] Section
5(3).
[125] The Laws of New
Zealand, Vol 23 para 54 and note 7.
[126] The Laws of New Zealand, Vol 2 para 74. Batchelor's Pram House Ltd v Mckenzie Brothers Electrical Ltd [1962] NZLR 545 at 547.
[127] The 1982 Act, s1(2). For the definition, see Chapter 2.
[128] Implied terms as to title etc. Under sections 12-15 of the 1979 Act, terms as to title, correspondence with description or sample, merchantability, and fitness for purpose or purposes are implied into a contract of sale.
[129] It is also part of the law of bailment that an ordinary bailee is estopped from denying the title of his bailor. Biddle v Bond (1865) 6B & S225, 232; 122 ER, 1179, 1182, per Lord Blackburn. However, this does not apply to hire purchase as the provision of an option to acquire title gives the hirer the right to expect that the bailor has the title to transfer when he is required to transfer it. Karflex, Ltd v Poole [1933] 2 KB 251.
[130] Such a term is implied in contracts of hire. Lee v Atkinson and Brooks (1609) Cro Jac 236; 79 ER 204.
[131] Section 103 of the Goods Act 1958 (Vic) implies into a lease of goods a condition that the lessor has a right to hire the goods for the period of the hire.
[132] Lee v Atkinson
(1609) Yelv 172; 80 ER 114; Warman v Southern Counties Car Finance Corp Ltd
[1949] 2
KB 576.
[133] Warman v
Southern Counties Car Finance Corp Ltd [1949] 2 KB
576.
[134] The Laws of New
Zealand, Vol 2 (Bailment), at para 58.
[135] For example, wrongful interference with goods.
[136] It applies to "a contract for the supply of goods under which the property is to pass or may pass to the consumer".
[137] N E Palmer, "The Supply of Goods and Services Act 1982", (1983) 46 MLR 619 at 624.
[138] Mercantile Union Guarantee Corporation, Ltd v Wheatley [1938] 1 KB 490; Karflex, Ltd v Poole [1933] 2 KB 251.
[139] Mercantile Union Guarantee Corporation, Ltd v Wheatley [1938] 1 KB 490; Karflex, Ltd v Poole [1933] 2 KB 251.
[140] Lee v Atkinson and Brooks (1609), Cro Jac 236; Lloyds and Scottish Finance, Ltd v Modern Cars and Caravans (Kingston), Ltd [1966] 1 QB 764.
[141] (QLD) Hire-Purchase Act 1959 s5(1); (TAS) Hire-Purchase Act 1959 s9(1); (VIC) Hire-Purchase Act 1959 s5(1); (WA) Hire-Purchase Act 1959 s5(1).
[142] (QLD) Hire-Purchase Act 1959 s5(1); (TAS) Hire-Purchase Act 1959 s9(1); (VIC) Hire-Purchase Act 1959 s5(1); (WA) Hire-Purchase Act 1959 s5(1).
[143] "Continuing credit
contract" and "loan contract" are defined in sections 73A and 73B respectively.
In any event, they are not relevant to the present
discussion.
[144] Section
73(1)(a) and (b).
[145] It is defined to mean a credit provider:
(a) who has a contract, arrangement or understanding with a dealer (supplier) concerning the supply to the supplier of goods; the business of the supplier; or the provision of credit;
(b) to whom a supplier, by arrangement with the credit provider, regularly refers persons wanting credit;
(c) who gives a supplier its credit application forms to be made available to prospective borrowers; or
(d) who has a contract, arrangement or understanding with a supplier under which documents concerning credit are available for signature by prospective borrowers at the supplier's premises.
[146] Statutory implied
terms under sections 70-72 as to correspondence with description, merchantable
quality, fitness for purpose and supply by sample. It also covers breaches of
the warranties implied by section 74 in contracts for
services.
[147] Section
73(2).
[148] Section 73(3). It also
expressly mentions "tied loan contract" and "tied continuing credit contract"
which are not relevant to the present
discussion.
[149] Assessed
according to sections 73(11) & (12).
[150] Section 73(7). According to section 73(9), the same applies to a counter-claim made against a linked credit provider under section 73(4).
[151] Section 73(5). The same
applies to a counter-claim made against a linked credit provider under section
73(4).
[152] Section
73(6).
[153] Section 73(8).
According to section 73(9), the same applies to a counter-claim made against a
linked credit provider under section
73(4).
[154] Section 73(14) of
the 1974 Act.
[155] This is according to Mr K M Li (Deputy Chief Executive of the Consumer Council, a member of the Sub-committee) and Mr Steve Page in telephone conversations between the Secretary of the Sub-committee and them both on 28 Oct 1999. Mr Page, the then Deputy Managing Director of Wayfoong Finance Ltd, was a member of the Sub-committee.
[156] Basically, hirers could have no contractual claims against dealers since the latter are not parties to hire purchase agreements. However, where a dealer has made an express warranty about the goods, the court may regard this as giving rise a collateral contract. If the warranty is broken, the dealer will be liable. Andrews v Hopkinson [1957] 1 QB 229. See also R M Goode, Hire Purchase Law and Practice, 2nd Ed, 1970, at 638-640.
[157] Where a dealer acts fraudulently or makes untrue statements knowingly or regardless whether they are true or not, he may be liable in tort of deceit. Where a dealer supplies defective goods negligently and the hirer suffers loss, the dealer may be liable in tort of negligence.
[158] In New Zealand, both creditor providers and dealers are liable since “supplier” is defined to include a person who transfers the ownership or possession of the goods pursuant to a contract of hire purchase, and a person who assigns the goods to a financier to enable the financier to supply the goods to consumers (section 2 of the 1993 Act).