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Hong Kong Law Reform Commission |
4.1 In this chapter, we first examine the implied term as to
correspondence with description in section 15 of Cap 26 and then, in respect of
this implied term, 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.
4.2 For each of these three types of
contracts, we examine the common law position in Hong Kong and then the
positions in Australia, New Zealand and England and Wales as well as the
relevant comments of academics and overseas law reform bodies.
4.3 As
regards the implied terms on correspondence with description, we received no
specific comments from respondents on the two recommendations in the
Consultation Paper concerning contracts for transfer of property in goods and
contracts of hire. We confirm these recommendations in this Report. In respect
of hire purchase agreements, the Hong Kong Bar Association has made suggestions
which are addressed in this chapter. We conclude that the recommendation in the
Consultation Paper in relation to hire purchase agreements can remain unchanged.
Our recommendations for each of the three types of contracts are as
follows:
(a) contracts for transfer of property in goods – Recommendation 9;
(b) contracts of hire – Recommendation 10;
(c) hire purchase agreements – Recommendation 11.
We
reiterate what was said in Chapter 3: there should be a cautious consideration
of the relationship of credit providers, hirers and dealers and in general, a
comprehensive review of the hire purchase law.
4.4 The undertakings as to correspondence with description are set out
in section 15 of Cap 26 which reads as follows:
"(1) Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale is by sample, as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(2) A sale of goods shall not be prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer."
4.5 Where
there is a contract for the sale of goods by description, there is an implied
condition, under section 15, that the goods will correspond with the
description. If the sale is by sample and by description, the bulk of the goods
must correspond with both the sample and the description. A sale may be a sale
"by description" even if the goods are exposed for sale or hire and are selected
by a buyer.[159]
4.6 As discussed in Chapter 3 on "Implied terms about title", in a
contract of barter, the terms to be implied at common law would be similar to
those implied for a contract of sale by Cap 26 in its original version. In
addition, 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.
4.7 Terms as to correspondence with description were implied in
contracts of sale at common law before the enactment of Cap
26.[160] Applying the principle
in the above paragraph, similar terms should be implied in contracts of barter
and contracts for work and materials and in general, for contracts for the
transfer of property in goods. However, setting out the rules in legislation
would be clearer and more certain and would provide easier access to the
law.
4.8 An implied term as to correspondence with description is provided
in section 70 of the 1974 Act as follows:
"(1) Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer by description, there is an implied condition that the goods will correspond with the description, and, if the supply is by reference to a sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(2) A supply of goods is not prevented from being a supply by description for the purposes of subsection (1) by reason only that, being exposed for sale or hire, they are selected by the consumer."
4.9 This
implied term applies to all kinds of supply of goods as defined in
section 4 which includes barter but not contracts for work and
materials.[161] There is an
implied condition that goods will correspond with description. If the supply is
by reference to a sample as well as by description, the bulk of the goods must
correspond with both the sample and the description. A supply of goods is also
by description even if the goods are exposed for sale or hire and selected by a
consumer. This implied condition only applies where the goods are supplied "in
the course of a
business".[162]
4.10 As the
1974 Act only applies to consumer transactions, the implied term as to
correspondence with description applies to consumer transactions only.
Non-consumer supply of goods is governed by common law. There is also no direct
authority on barter and contracts for work and materials concerning this.
However, the Australian court may follow the views of
Blackburn[163] and
Chalmers[164] that the common law
obligations of a seller apply to a supplier in contracts of barter. Since at
common law there are implied terms as to fitness for purpose and good quality
concerning contracts for work and
materials,[165] the Australian
courts would probably also imply a term as to correspondence with description
similar to that implied for a sale of goods contract.
4.11 Section 9 of the 1993 Act provides for the implied term as to
correspondence with description and reads as follows:
"(1) Subject to section 41 of this Act, where goods are supplied by description to a consumer, there is a guarantee that the goods correspond with the description.
(2) A supply of goods is not prevented from being a supply by description by reason only that, being exposed for sale or hire, they are selected by a consumer.
(3) If the goods are supplied by reference to a sample or demonstration model as well as by description, the guarantees in this section and in section 10 of this Act will both apply.
(4) Where the goods fail to comply with the guarantee in this section -
(a) Part II of this Act gives the consumer a right of redress against the supplier; and
(b) Part III of this Act may give the consumer a right of redress against the manufacturer."
4.12 This
implied term applies to all kinds of supply of goods as defined in
section 2 and therefore it applies to barter, and contracts for work and
materials by virtue of section 15. The implied guarantee is that the goods
will correspond with description. If the supply is by reference to a sample as
well as by description, the bulk of the goods must correspond with both the
sample and the description. A supply of goods may be by description even if the
goods are exposed for sale or hire and selected by a consumer. This implied
guarantee only applies where the goods are supplied in trade (section 41) which
is defined in section 2(1).
4.13 As the 1993 Act only applies to consumer
transactions, non-consumer contracts for transfer of property in goods (such as
barter and contracts for work and materials) are governed by common law. The
law relating to barter is undeveloped in New Zealand. The court "seems
inclined to deal with such contracts as if they were analogous to contracts of
sale".[166] As to contracts
for work and materials, there is no direct authority in respect of the implied
term relating to correspondence with description, but terms as to fitness for
purpose and good quality are implied for such
contracts.[167] Therefore, the
New Zealand court may imply a term as to correspondence with description similar
to that implied for a sale of goods contract.
4.14 The implied term as to correspondence with description is
provided in section 3 of the 1982 Act which reads as follows:
"(1) This section applies where, under a contract for the transfer of goods, the transferor transfers or agrees to transfer the property in the goods by description.
(2) In such a case there is an implied condition that the goods will correspond with the description.
(3) If the transferor transfers or agrees to transfer the property in the goods by sample as well as by description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(4) A contract is not prevented from falling within subsection (1) above by reason only that, being exposed for supply, the goods are selected by the transferee."
4.15 As
in Australia and New Zealand, there is an implied condition that the goods will
correspond with the description. If the supply is by reference to a sample as
well as by description, the bulk of the goods must correspond with both the
sample and the description. A supply of goods is also by description even if
the goods are exposed for supply and selected by a transferee. The 1982 Act
applies to both consumer and non-consumer transactions.
4.16 It is clear from the above discussion that in other
jurisdictions, there are also implied terms as to correspondence to description
for contracts of barter and contracts for work and materials in particular, and
for contracts for transfer of property in goods in general. The provisions in
those jurisdictions are similar to section 15 of Cap 26 and should provide a
blueprint for other types of contracts for the supply of goods. Like
Cap 26, the proposed implied term should apply to both consumers and
non-consumers. In section 15(2) of Cap 26, "being exposed for sale or hire" is
used while in the corresponding subsection of the 1982 Act, "being exposed for
supply" is used. After comparing the two, it is preferable to adopt "being
exposed for supply" to allow for the possibility of goods being exposed with a
view to other types of transactions.
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Recommendation 9
We recommend that provisions as to correspondence with description
similar to those in section 15 of Cap 26 should be provided for consumer and
non-consumer contracts for transfer of property in goods, namely:
(a) an implied condition that the goods correspond with the description
if the transfer is by description;
(b) a provision that if the transfer is both by description and by
sample, the bulk of the goods should correspond with both the description and
the sample; and
(c) a provision that it is still a supply by description even if the
goods are exposed for supply and selected by a transferee.
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4.17 Where goods are supplied under a contract of hire by description,
it should seem desirable to have an implied term that the goods correspond with
the description. There is not much case law to support this point but there is
some support for the proposition that there is an implied term as to
correspondence with
description.[168] Therefore, the
term implied at common law concerning correspondence to description should
substantially be the same as that implied by Cap 26 for a contract of
sale.
4.18 For consumer contracts of hire, an implied condition as to
correspondence with description is provided in section 70 of the 1974 Act, since
"supply" is defined in section 4 to include "hire". Therefore, the
discussion above under the heading "Contracts for transfer of property in goods"
also applies to contracts of hire.
4.19 For non-consumer contracts of
hire, in Victoria where a bailor bails the goods by description, there is an
implied condition that the goods will correspond with the
description.[169]
4.20 Section 2 of the 1993 Act defines "supply" to include "hire".
The implied condition as to correspondence with description provided in section
9 therefore also applies to consumer contracts of hire. Hence the discussion
above under the heading "Contracts for transfer of property in goods" also
applies to contracts of hire.
4.21 For non-consumer contracts of hire,
there is no direct case law on this point even though there is some support for
the imposition of an implied warranty as to a hirer's quiet possession for the
period of hire.[170]
4.22 Section 8 of the 1982 Act provides for an implied term as to
correspondence with description and reads as follows:
"(1) This section applies where, under a contract for the hire of goods, the bailor bails or agrees to bail the goods by description.
(2) In such a case there is an implied condition that the goods will correspond with the description.
(3) If under the contract the bailor bails or agrees to bail the goods by reference to a sample as well as a description it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(4) A contract is not prevented from falling within subsection (1) above by reason only that, being exposed for supply, the goods are selected by the bailee."
4.23 As
in contracts for the transfer of property in goods, there is an implied
condition that the goods will correspond with the description in both consumer
and non-consumer contracts of hire. If the supply is by reference to a sample
as well as by description, the bulk of the goods must correspond with both the
sample and the description. A supply of goods is also by description even if
the goods are exposed for supply and selected by a hirer.
4.24 In Australia, New Zealand and England and Wales, there are also
implied terms as to correspondence to description for contracts of hire and
their respective legislative provisions are similar to section 15 of Cap 26
in Hong Kong. We recommend including a similar implied term for contracts of
hire in the Recommended Legislation. Like Cap 26, the proposed implied
term should apply to both consumers and non-consumers. As discussed under the
heading of "Contracts for transfer of property in goods", it would be preferable
to adopt "being exposed for supply" instead of "being exposed for sale or hire"
to allow for the possibility of goods being exposed with a view to other types
of transactions.
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Recommendation 10
We recommend that provisions as to correspondence with description
similar to those in section 15 of Cap 26 should be provided for consumer and
non-consumer contracts of hire, namely:
(a) an implied condition that the goods correspond with the description
if the hire is by description;
(b) a provision that if the hire is both by description and by sample,
the bulk of the goods should correspond with both the description and the
sample; and
(c) a provision that it is still a supply by description even if the
goods are exposed for supply and selected by a hirer.
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4.25 At common law, there is an implied condition that goods let on
hire purchase correspond with their
description.[171] Where the goods
are let both by description and sample, Sir Roy Goode is of the view that it is
reasonable to suppose that the bulk must correspond with both the description
and sample.[172] The goods must
correspond with the description in every particular. Otherwise, a hirer is
entitled to reject the goods even though the discrepancy is
small.[173]
4.26 For consumer hire purchase agreements, an implied condition as to
correspondence with description is provided in section 70 of the 1974 Act, since
"supply" is defined in section 4 to include "hire purchase". Therefore, the
discussion above under the heading "Contracts for transfer of property in goods"
also applies to hire purchase agreements.
4.27 For non-consumer hire
purchase agreements, the position is less clear since there is no statutory
implied term in the relevant Hire-Purchase
Acts.[174] It is possible that
the Australian court may follow the common law authority that goods let on hire
purchase should correspond with their
description.[175]
4.28 Section 2 of the 1993 Act defines "supply" to include "hire
purchase". The implied condition as to correspondence with description provided
in section 9 should therefore apply to consumer hire purchase agreements.
Therefore, the discussion above under the heading "Contracts for transfer of
property in goods" also applies to hire purchase agreements.
4.29 For
non-consumer hire purchase agreements, section 14(2) of the Hire Purchase Act
1971 provides a similar guarantee as to correspondence with
description.
4.30 Section 9 of the 1973 Act provides for an implied term as to
correspondence with description. It reads as follows:
"(1) Where under a hire-purchase agreement goods are bailed or (in Scotland) hired by description, there is an implied term that the goods will correspond with the description, and if under the agreement the goods are bailed or hired by reference to a sample as well as a description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
(1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition.
(2) Goods shall not be prevented from being bailed or hired by description by reason only that, being exposed for sale, bailment or hire, they are selected by the person to whom they are bailed or hired."
4.31 There
is an implied condition that goods correspond with their description in both
consumer and non-consumer hire purchase agreements. If the supply is by
reference to a sample as well as by description, the bulk of the goods must
correspond with both the sample and the description. A bailment or hire of
goods is also by description even if the goods are exposed for sale, bailment or
hire and selected by a bailee or hirer.
4.32 In Australia, New Zealand and England and Wales, implied terms as
to correspondence to description similar to those in section 15 of Cap 26
apply to hire purchase agreements. The Consultation Paper recommended including
similar implied terms for hire purchase agreements in the Recommended
Legislation. Like Cap 26, the proposed implied terms should apply to both
consumers and non-consumers. As discussed under the heading of "Contracts for
transfer of property in goods", it would be preferable to adopt "being exposed
for supply" instead of "being exposed for sale or hire" to allow for the
possibility of goods being exposed with a view to other types of
transactions.
4.33 The Hong Kong Bar Association welcomes the
recommendation, but observes that the concept of "antecedent negotiations" was
only mentioned in Recommendation 14 in the Consultation Paper (implied terms as
to quality and fitness) but not in Recommendation 11 (the implied terms as to
correspondence with description). The Bar Association believes that such a
concept should apply to the implied terms as to correspondence with description.
It observes that in most hire purchase transactions it is the supplier who
provides the description of the goods to the hirer. But in some cases, a hire
purchase agreement (such as that involving vehicles) made between a supplier (a
finance company) and a hirer may not contain a full description of the goods.
For instance, documents provided by a car dealer usually set out the model of
the car, the year of manufacture and a number of other specifications, whereas
the hire-purchase agreement between the finance company and the customer may
only set out the model of the car and the year of manufacture. Without applying
the "antecedent negotiation" concept, those "other specifications" will not form
part of the description of the goods.
4.34 There are two issues involved
in the Bar Association’s comments: (a) what amounts to a hire by
description; and (b) whether or not a dealer is an agent of the finance
company.
4.35 Recommendation 11 in the Consultation Paper is similar to section
15 of Cap 26 and section 9 of the 1973 Act. No cases can be found on section 9
of the 1973 Act. We can draw references to cases on section 15 of Cap 26. All
contracts for the sale of unascertained goods and most sales of future goods are
"sales by description". The term also applies to all cases where a purchaser
has not seen the goods, but is relying on the description alone. Even if the
goods are displayed before a buyer, it can still amount to a "sale by
description" so long as the goods are sold not as specific things but as things
corresponding to descriptions, such as a hot-water bottle, woollen undergarments
etc.[176] Sales other than by
description are therefore comparatively rare, and the only sales not by
description are sales of specific goods as
such.[177]
4.36 Professor
Atiyah has mentioned that a sale of a manufactured item will nearly always be a
sale by description, since articles made to an identical design are generally
bought as goods corresponding to that design but not as unique
goods.[178] Sir Roy Goode has
said that these principles are "obviously applicable to hire-purchase
agreements" and has illustrated this with the following example:
"Thus, if a person goes to a dealer's showroom to acquire on sale or hire-purchase a 1966 Austin Seven motor car and upon seeing such a car in the showroom decides to take it, he will normally be regarded as purchasing or hiring the car by description, since he takes the car simply because it answers to the required description, namely a 1966 Austin car, and not because it has any special features distinguishing it from any other car of the same description. If, however, he sees a veteran car possessing unique features and this takes his fancy, his intention in buying or hiring it is to have that particular car on account of its own intrinsic qualities and not because it conforms to a description."[179]
Therefore
it seems that a purchase or hire purchase of a vehicle is still a transaction by
description so long as the vehicle is acquired as goods corresponding to the
general design of that model (and not as something unique). Thus we are of the
opinion that the setting out of the "model of the car" and its "year of
manufacture" in a hire purchase agreement means that the car hired should
correspond to the description of cars of that design. This should be able, at
least partly, to deal with the Bar Association’s concern. However, the
"other specifications" and other representations made by a dealer will not bind
the finance company unless there is an agency relationship between the two of
them.
4.37 At common law, whether or not a dealer in a hire purchase
transaction was regarded as the agent of the finance company was a source of
much controversy. Finally the House of Lords, by a majority of three to two,
held in Branwhite v Worcester Works Finance
Ltd[180] that a dealer was not
in general to be treated as the agent of the finance company. An agency
relationship would not be inferred merely from the fact that (a) a dealer was
supplied with the finance company’s standard forms of agreement; (b) he
was acquainted with the finance company’s charges; or (c) he had a master
agreement with the finance company regulating business relations with it.
Moreover, the receipt of commission by a dealer on business introduced by him to
the finance company would also not be enough to create an agency relationship.
There is no presumption of agency. The Branwhite case appears to leave
much to the court and the facts of each case.
4.38 It is still possible
for a dealer and a finance company to have a general agency relationship if it
is so arranged, but it is unusual for this to happen in a "direct collection
transaction"[181] which is the
most common type of instalment financing. A dealer may, however, be regarded as
the agent of the finance company for certain limited purposes, such as delivery
of the goods or receipt of notice by an intending hirer withdrawing his offer to
take the goods on hire purchase.
4.39 Hence at common law a dealer in a
direct collection transaction is not regarded as the agent of the finance
company so as to make the finance company responsible for representations made
about the goods by the dealer before the signing of the hire purchase agreement.
It is worth mentioning that in the United Kingdom, where a finance company lets
goods under a hire purchase agreement, the finance company will be responsible
for the representations made by the dealer in the course of antecedent
negotiations. Those negotiations are deemed to have been conducted by him as
agent for the finance company as well as in his actual
capacity.[182]
4.40 On
the one hand, we appreciate the merits of applying the "antecedent negotiations"
concept or creating an agency relationship between finance companies and
dealers. On the other hand, as the Bar Association has pointed out, hire
purchase transactions should perhaps be governed by a separate and comprehensive
statute similar to those in many other jurisdictions. We reiterate what was
said in Chapter 3: in our view a piecemeal reform without considering the full
picture may not achieve the most satisfactory result. A more cautious
consideration of the interests of credit providers, hirers and dealers is called
for. We conclude that a comprehensive review of hire purchase law is to be
preferred.
4.41 In addition, the concept of "antecedent negotiation" was
introduced into section 16 of Cap 26 to cover the situation where a particular
purpose for acquiring the goods is made known to persons other than the seller.
Moreover, the relevant legislation in Australia, England and New Zealand does
not apply this concept in respect of hire purchase agreements to the implied
terms of correspondence with description. We therefore conclude that
Recommendation 11 as originally proposed in the Consultation Paper should be
retained unchanged.
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Recommendation 11
We recommend that provisions as to correspondence with description
similar to those in section 15 of Cap 26 should be provided for both consumer
and non-consumer hire purchase agreements, namely:
(a) an implied condition that the goods correspond with the description
if the bailment is by description;
(b) a provision that if the bailment is both by description and by
sample, the bulk of the goods should correspond with both the description and
the sample; and
(c) a provision that it is still a supply by description even if the
goods are exposed for supply and selected by a bailee.
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[159] S15(2). Similar provision was also added to the 1979 Act by the 1973 Act. The amendment was made to remove any doubt as to whether a sale in a self-service store could constitute a sale by description; the provision makes it clear that it can.
[160] Randall v Newson [1877] 2 QBD 102, at 109, per Brett J A.
[161] 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 the implied term as to correspondence with description. See Chapter 5 for the text of section 74.
[162] According to the Halsbury's Laws of Australia, "English authorities, concerned with analogous legislation, suggest that this expression conveys the concept of some degree of regularity, and the sporadic sale by a corporation of superseded items of capital equipment does not meet this test: Davies v Sumner [1984] 1 WLR 1301"; see Halsbury's Laws of Australia, vol 5 [100-650] note 1.
[163] Lord Blackburn, Blackburn's Contract of Sale, 3rd Ed, 1910, at ix.
[164] Michael Mark, Chalmers Sale of Goods, 18th Ed, 1981, at 82-83.
[165] 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.
[166] The Laws of New Zealand, Vol 23, at para 54 and note 7.
[167] The Laws of New Zealand, Vol 2, at para 74. Batchelor's Pram House Ltd v Mckenzie Brothers Electrical Ltd [1962] NZLR 545 at 547.
[168] See Astley Industrial Trust Ltd v Grimley [1963] 1 WLR 584, a hire-purchase case, per Pearson L J at 595, Upjohn LJ at 597 and Ormerod L J at 600; Reardon Smith Line Ltd v YngvarHansen-Tangen [1976] 1 WLR 989, per Viscount Dilhorne, at 1000.
In England and Wales, on consultation, there was general support for the view of the Law Commission that the terms implied at common law as regards correspondence to description should substantially be the same as the terms implied by statute in contracts for the supply of goods by sale. (Law Com No 95, at para 86)
[169] (Vic) Goods Act 1958
s104. However, in the Northern Territory, South Australia and Western
Australia, such an implied condition is implied into consumer contracts only:
(NT) Consumer Affairs and Fair Trading Act 1990 s63; (SA) Consumer Transactions
Act 1972 s8(3); (WA) Fair Trading Act 1987 s37. There is no equivalent
provision in other
jurisdictions.
[170] See
The Laws of New Zealand, "Bailment", at para
58.
[171] Astley Industrial
Trust Ltd v Grimley [1963] 1 WLR
584.
[172] R M Goode,
Hire-Purchase Law and Practice, 2nd Ed, 1970, at
219.
[173] Arcos Ltd v E A
Ronaasen & Son [1933] AC 470.
[174] (QLD) Hire-Purchase Act
1959; (TAS) Hire-Purchase Act 1959; (VIC) Hire-Purchase Act 1959; (WA)
Hire-Purchase Act 1959.
[175]
Astley Industrial Trust Ltd v Grimley [1963] 1 WLR
584.
[176] Benjamin’s
Sale of Goods, 5th Ed,1997, para
11-008.
[177]
Benjamin’s Sale of Goods, 5th Ed,1997, para
11-011.
[178] The Sale of
Goods, 10th Ed, 2001, at
149.
[179] Hire-Purchase
Law and Practice, 2nd Ed, 1971, at 218.
[180] [1969] 1 AC 552.
[181] In a direct collection transaction, a dealer sells goods to a finance company which lets the goods to its customers on hire purchase terms, and the finance company collects the instalments directly from the hirer and the dealer drops out of the transaction.
[182] Section 56(1)(b) and (2) of the Consumer Credit Act 1974. All the former hire purchase legislation was repealed and replaced by the Consumer Credit Act 1974.