Hong Kong Law Reform Commission

Chapter 5 - Implied terms to be included in the Recommended Legislation – implied terms about quality or fitness

• Overview
• Implied undertakings as to quality or fitness under Cap 26
• Contracts for the transfer of property in goods
• Contracts of hire
• Hire purchase agreements

Overview

5.1 In this chapter, we first examine the implied undertakings as to quality or fitness in section 16 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.

5.2 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. The relevant comments of academics and overseas law reform bodies will then be examined.

5.3 In relation to the three types of contracts, we discuss the similarities and differences of section 16 of Cap 26 with the relevant provisions of other jurisdictions. As to the "differences", we discuss the following issues in particular:

(a) the reasonable man test should be adopted for "quality";
(b) the list of aspects of "quality" should be non-exhaustive;
(c) in the list of aspects of "quality", goods are required to be fit for all their common purposes;
(d) the term "satisfactory quality" should replace "merchantable quality";
(e) "state or condition" should be put together with the list of aspects of "quality" in the same sub-section;
(f) the concept of "antecedent negotiation" in section 16(6) of Cap 26 should be followed.

A number of respondents have commented on some of the recommendations in the Consultation Paper in respect of the "differences" which are applicable to each of the three types of contracts. We address these comments under the heading "Contracts for transfer of property in goods", and conclude that all the recommendations in (a) to (f) should remain unchanged.

5.4 For contracts of hire, we discuss the following issues in particular:

(a) the liability of a bailor should be strict;
(b) there should be two obligations: quality and fitness for purpose;
(c) the implied terms as to quality and fitness for purpose should be conditions;
(d) a bailor should not be liable for defects made known to a hirer, or where the hirer did not make known the required purpose or did not rely on the bailor's skill or judgment.

Apart from comments on the "differences", we received no objection to the recommendations in the Consultation Paper in relation to the terms about quality or fitness to be implied in contracts of hire and hire purchase agreements. We accordingly adopt these recommendations without making amendment.

5.5 The recommendations for each of the three types of contracts are as follows:

(a) contracts for transfer of property in goods – Recommendation 12;
(b) contracts of hire – Recommendation 13;
(c) hire purchase agreements – Recommendation 14.

Implied undertakings as to quality or fitness under Cap 26

5.6 Section 16 of Cap 26 deals with the undertakings of a seller as to the quality or fitness of goods sold:

"(1) This section provides for the circumstances in which, and the extent to which, there is any implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition –

(a) as regards defects specifically drawn to the buyer's attention before the contract is made; or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal; or

(c) if the contract is a contract for sale by sample, as regards defects which would have been apparent on a reasonable examination of the sample.

(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's skill or judgment.

(4) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.

(5) Subsections (1), (2), (3) and (4) apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.

(6) In the application of subsection (3) to an agreement for the sale of goods under which the purchase price or part of it is payable by instalments any reference to the seller shall include a reference to the person by whom any antecedent negotiations are conducted.

(7) In subsection (6) 'antecedent negotiations' (事先商議) means any negotiations or arrangements with the buyer whereby he was induced to make the agreement or which otherwise promoted the transaction to which the agreement relates.

(8) Except as provided by this section and section 17, and subject to the provisions of any other enactment, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale."

"In the course of a business"

5.7 A distinguishing feature of this section is that it relates to selling "in the course of a business". For the purpose of Cap 26, a "business" includes a profession and the activities of a public body, a public authority, or a board, commission, committee or other body appointed by the Chief Executive or Government.[183] In contrast, under sections 14, 15 and 17 (which relate to undertakings as to title and as to sale by description or sample), the obligations of a seller arise whether the sale is in the course of a business or is a "private" sale.

Implied term as to merchantable quality

5.8 Section 16(2) of Cap 26 provides that where goods are sold in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality. There is no such condition as regards defects which have been specifically drawn to the attention of the buyer before the contract is made or which ought to have been revealed or apparent on examination of the goods or sample. The term "merchantable quality" is defined in section 2(5). The criteria for determining whether particular goods are of merchantable quality are fitness for the purpose(s) for which goods of that kind are commonly bought, standard of appearance and finish, freedom from defects, safety and durability. These criteria are measured in light of any description applied to the goods and the price (if relevant).[184]

Implied term as to fitness for purpose

5.9 Section 16(3) implies into a contract of sale in the course of a business of a seller a condition that the goods supplied under the contract are reasonably fit for any particular purpose for which the goods are being bought, if that purpose has been made known to the seller by the buyer expressly or by implication. This applies whether or not the purpose is a purpose for which goods of that kind are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's skill or judgment.

Contracts for the transfer of property in goods

Common law position in Hong Kong

5.10 As discussed in Chapter 3 on "Implied terms about title", the terms to be implied into contracts of barter at common law would be similar to those implied for contracts of sale by Cap 26 in its original version.

5.11 Also as discussed in Chapter 3, in the Court of Appeal, du Parcq L J said,

"... I think that the true view is that a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them, unless the circumstances of the contract are such as to exclude any such warranty".[185]

5.12 From both Dodd and Dodd v Wilson and McWilliam[186] and Young & Marten Ltd v McManus Childs Ltd,[187] it is clear 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.

5.13 Therefore, at common law, terms as to quality and fitness for purpose similar to those implied for contracts of sale would be implied for contracts for the transfer of property in goods generally, including contracts of barter and contracts for work and materials.

Australia

5.14 The implied terms as to quality and fitness provided in section 71 of the 1974 Act read as follows:

"(1) Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business, there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality, except that there is no such condition by virtue only of this section:

(a) as regards defects specifically drawn to the consumer's attention before the contract is made; or

(b) if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

(2) Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the skill or judgment of the corporation or of that person.

(3) Subsections (1) and (2) apply to a contract for the supply of goods made by a person who in the course of a business is acting as agent for a corporation as they apply to a contract for the supply of goods made by a corporation in the course of a business, except where that corporation is not supplying in the course of a business and either the consumer knows that fact or reasonable steps are taken to bring it to the notice of the consumer before the contract is made."

Implied condition as to merchantable quality

5.15 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. Section 71 provides for an implied condition as to merchantable quality of the goods unless, before the contract, the consumer's attention has been drawn to the defects, or the consumer has examined the goods and that examination should have revealed the defects. According to section 66(1), a reference to the quality of goods includes the state or condition of the goods. Section 66(2) further provides that goods are of merchantable quality if they are as fit for the purpose(s) for which goods of that kind are commonly bought as it is reasonable to expect, having regard to the description, price (if relevant) and other relevant factors.

Implied condition as to fitness for purpose

5.16 Section 71(2) provides for the implied condition as to fitness for purpose when a consumer, expressly or by implication, makes known to the supplier (the corporation), or to the person by whom any antecedent negotiation are conducted, any particular purpose for which the goods are acquired. There is no such condition where a consumer does not rely, or it is unreasonable for him to rely, on the skill or judgment of the supplier or that person. An antecedent negotiation is defined to mean any negotiation or arrangement conducted or made with a consumer by another person in the course of a business carried on by the other person by which the consumer was induced to make the contract or which otherwise promoted the transaction.

Agent for the supplier

5.17 Section 71(3) provides that this section also applies to the supply of goods by a person who, in the course of a business, acts as agent for a corporation (the supplier). There is an exception where a corporation is not supplying in the course of a business and either the consumer knows it or reasonable steps are taken to alert the consumer before the contract. This implied condition only applies where the goods are supplied "in the course of a business".[188]

Section 74 provides for contracts for work and materials

5.18 The implied terms as to quality and fitness provided for contracts for work and materials in section 74 are as follows:

"(1) In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied.

(2) Where a corporation supplies services (other than services of a professional nature provided by a qualified architect or engineer) to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation any particular purpose for which the services are required or the result that he or she desires the services to achieve, there is an implied warranty that the services supplied under the contract for the supply of the services and any materials supplied in connexion with those services will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the corporation's skill or judgment.

(3) A reference in this section to services does not include a reference to services that are, or are to be, provided, granted or conferred under:

(a) a contract for or in relation to the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on or engaged in by the person for whom the goods are transported or stored; or

(b) a contract of insurance."

5.19 Section 74(1) implies a warranty that any materials supplied in connection with services shall be reasonably fit for the purpose for which they are supplied. Section 74(2) implies another warranty that where any particular purpose is made known, the materials supplied shall be fit for that particular purpose, except where a consumer does not, or it is unreasonable for him to, rely on the skill or judgment of the supplier.

5.20 Section 74(1) has been criticised for imposing a different set of obligations regarding the materials supplied, depending on whether a supplier supplies just the materials or the materials together with services.[189] The Law Commission of England and Wales has made similar criticisms.[190] The obligation of a supplier under section 74(1) is unqualified and he is liable even where a customer does not rely on his skill or judgment or does so unreasonably. On the contrary, section 71(1) provides that a supplier's obligations are qualified by any defects specifically drawn to a consumer's attention or defects which ought to have been revealed by an examination. Section 74(1) appears to impose much stricter obligations on a supplier than section 71(1) does, as far as the materials are concerned.

5.21 Section 74(2), dealing with any particular purpose drawn to a supplier's attention, contains the same qualification regarding reliance on the supplier's skill or judgment as that contained in section 71(2). However, terms implied under section 74 are warranties as opposed to conditions implied under section 71.

5.22 As discussed in Chapter 1, it is preferable that terms implied for each type of supply of goods should be consistent as far as possible. Therefore, terms implied in the Recommended Legislation concerning the materials supplied under contracts for work and materials should be consistent with other types of supply of goods.

Non-consumer transactions

5.23 As the 1974 Act only applies to consumer transactions, the implied conditions as to quality and fitness apply to consumer transactions only. Non-consumer transactions of supply of goods are governed by common law. Although there is no direct authority as to the implied terms in barter, the Australian court is likely to follow the view that the common law obligations of a seller apply to a supplier in a contract of barter. Terms as to fitness for purpose and good quality are implied for contracts for work and materials.[191] This is an absolute guarantee and applies also to latent defects in the materials which a supplier is not aware of, even when a supplier has exercised reasonable care.[192]

New Zealand

Implied term as to quality

5.24 The implied term as to quality in section 6 of the 1993 Act reads as follows:

"(1) Subject to section 41 of this Act, where goods are supplied to a consumer there is a guarantee that the goods are of acceptable quality.

(2) Where the goods fail to comply with the guarantee in this section –

(a) Part II of this Act may give 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."

(a) "acceptable quality" defined in section 7

5.25 "Acceptable quality" is defined in section 7 as follows:

"(1) For the purposes of section 6 of this Act, goods are of acceptable quality if they are as –

(a) Fit for all the purposes for which goods of the type in question are commonly supplied; and

(b) Acceptable in appearance and finish; and

(c) Free from minor defects; and

(d) Safe; and

(e) Durable –

as a reasonable consumer fully acquainted with the state and condition of the goods, including any hidden defects, would regard as acceptable, having regard to -

(f) The nature of the goods;

(g) The price (where relevant);

(h) Any statements made about the goods on any packaging or label on the goods;

(i) Any representation made about the goods by the supplier or the manufacturer;

(j) All other relevant circumstances of the supply of the goods.

(2) Where any defects in goods have been specifically drawn to the consumer's attention before he or she agreed to the supply, then notwithstanding that a reasonable consumer may not have regarded the goods as acceptable with those defects, the goods will not fail to comply with the guarantee as to acceptable quality by reason only of those defects.

(3) Where goods are displayed for sale or hire, the defects that are to be treated as having been specifically drawn to the consumer's attention for the purposes of subsection (2) of this section are those disclosed on a written notice displayed with the goods.

(4) Goods will not fail to comply with the guarantee of acceptable quality if -

(a) The goods have been used in a manner, or to an extent which is inconsistent with the manner or extent of use that a reasonable consumer would expect to obtain from the goods; and

(b) The goods would have complied with the guarantee of acceptable quality if they had not been used in that manner or to that extent.

(5) A reference in subsections (2) and (3) of this section to a defect means any failure of the goods to comply with the guarantee of acceptable quality."

(b) test for "acceptable quality"

5.26 This implied term applies to all kinds of supply of goods as defined in section 2 and it therefore applies to barter, and contracts for work and materials by reason of section 15. According to section 7, "acceptable quality" means being fit for all the purposes for which goods of that kind are commonly supplied, acceptable in appearance and finish, free from minor defects, safe and durable. The test is whether a reasonable consumer fully acquainted with the state and condition of the goods including any hidden defects would regard the goods as acceptable, having regard to the nature of the goods, their price, any statement on any packaging or label, any representation by the supplier or manufacturer and any other relevant circumstances.

(c) exceptions

5.27 There are two exceptions. The first is where defects have been specifically drawn to the consumer's attention before the contract (subsection 2). The second is where goods would comply with this section but for having been used in a manner, or to any extent, which is inconsistent with the manner or extent of use that a reasonable consumer would expect to obtain from the goods (subsection 4). This implied guarantee only applies where the goods are supplied in trade (section 41), which is defined in section 2(1).

Implied term as to fitness for purpose

5.28 The implied term as to fitness for a particular purpose in section 8 of the 1993 Act is as follows:

"(1) Subject to section 41 of this Act, the following guarantees apply where goods are supplied to a consumer:

(a) That the goods are reasonably fit for any particular purpose that the consumer makes known, expressly or by implication, to the supplier as the purpose for which the goods are being acquired by the consumer; and

(b) That the goods are reasonably fit for any particular purpose for which the supplier represents that they are or will be fit.

(2) Those guarantees do not apply where the circumstances show that –

(a) The consumer does not rely on the supplier's skill or judgment; or

(b) It is unreasonable for the consumer to rely on the supplier's skill or judgment.

(3) This section applies whether or not the purpose is a purpose for which the goods are commonly supplied.

(4) 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."

5.29 This implied term applies to all kinds of supply of goods as defined in section 2 and therefore applies to barter and contracts for work and materials by reason of section 15. Section 8 provides for a guarantee as to fitness for purpose when a consumer, expressly or by implication, makes known to the supplier any particular purpose for which the goods are acquired or when the supplier represents that the goods fit for any particular purpose. This section does not apply where the consumer does not rely, or it is unreasonable for him to rely, on the skill or judgment of the supplier. This implied guarantee only applies where the goods are supplied in trade (section 41) which is defined in section 2(1).

Non-consumer transactions

5.30 As the 1993 Act only applies to the supply of goods to a consumer, the supply of goods to non-consumers by way of barter and contracts for work and materials is governed by common law. The court "seems inclined to deal with contracts [of barter] as if they were analogous to contracts of sale".[193] In respect of the materials supplied by way of contracts for work and materials, there are implied terms as to fitness for purpose and good quality.[194]

England and Wales

5.31 The implied terms as to quality and fitness in section 4 of the 1982 Act read as follows:

"(1) Except as provided by this section and section 5 below and subject to the provisions of any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract for the transfer of goods.

(2) Where, under such a contract, the transferor transfers the property in goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this section and section 5 below, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(3) The condition implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory –

(a) which is specifically drawn to the transferee's attention before the contract is made,

(b) where the transferee examines the goods before the contract is made, which that examination ought to reveal, or

(c) where the property in the goods is transferred by reference to a sample, which would have been apparent on a reasonable examination of the sample.

(4) Subsection (5) below applies where, under a contract for the transfer of goods, the transferor transfers the property in goods in the course of a business and the transferee, expressly or by implication, makes known –

(a) to the transferor, or

(b) where the consideration or part of the consideration for the transfer is a sum payable by instalments and the goods were previously sold by a credit-broker to the transferor, to that credit-broker,

any particular purpose for which the goods are being acquired.

(5) In that case there is (subject to subsection (6) below) an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied.

(6) Subsection (5) above does not apply where the circumstances show that the transferee does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the transferor or credit-broker.

(7) An implied condition or warranty about quality or fitness for a particular purpose may be annexed by usage to a contract for the transfer of goods.

(8) The preceding provisions of this section apply to a transfer by a person who in the course of a business is acting as agent for another as they apply to a transfer by a principal in the course of a business, except where that other is not transferring in the course of a business and either the transferee knows that fact or reasonable steps are taken to bring it to the transferee's notice before the contract concerned is made."

Implied condition as to satisfactory quality

5.32 Where there is a transfer of property in goods in the course of business, there is an implied condition as to satisfactory quality. According to section 18(3), "quality" includes the state, condition and aspects such as (among others) fitness for all the purposes for which goods of that kind are commonly supplied, appearance and finish, freedom from minor defects, and the safety and durability of the goods. The test, according to subsection (2A), is whether a reasonable person would regard the goods as satisfactory, having regard to their price, any description and all other relevant circumstances.

5.33 There are exceptions in subsection (3). The first is where matters making the goods unsatisfactory have been specifically drawn to a transferee's attention before the contract. The second is where a transferee's examination of the goods ought to reveal such matters. A third exception arises in the case of transfers by sample where a reasonable examination of the sample would reveal such matters.

Implied condition as to fitness for purpose

5.34 Subsections (4) and (5) provide for an implied condition as to fitness for purpose where a transferor transfers property in goods in the course of business and the transferee tells the transferor or, if a credit-broker[195] previously sold the goods to the transferor,[196] tells that credit-broker, the particular purpose of acquiring the goods. There is no such implied term where the transferee does not rely, or it is unreasonable for him to rely, on the skill or judgment of the transferor or credit-broker (subsection (6)).

Agent for the supplier

5.35 Subsection (8) provides that this section also applies to the supply of goods by a person who, in the course of a business, acts as agent for another. There is an exception where that other person is not supplying goods in the course of a business and either the transferee knows it or reasonable steps are taken to alert the transferee before the contract.

Notion of "caveat emptor"

5.36 The implied conditions as to quality and fitness in section 4 erode the notion of "caveat emptor" (let the buyer beware). On the other hand, section 4(1) tries to preserve the notion by limiting the application of the implied conditions to transfers "in the course of a business"[197] (subsections (2) and (5)), transfers by sample (section 5) and situations provided in any other enactment. But subsection (7) provides that the implied conditions as to quality and fitness may be annexed by usage to a contract.[198]

Conclusion

Similarity with other jurisdictions

5.37 It is clear that the implied terms as to quality and fitness for purpose concerning sale of goods in section 16 of Cap 26 are in general similar to the corresponding statutory implied terms for other kinds of supply of goods in other jurisdictions, especially section 71 of the 1974 Act and section 4 of the 1982 Act. For example, section 16(1) & (2) of Cap 26 provides for an implied condition as to quality while section16(3) provides for an implied condition as to fitness for purpose. Section 16(8) preserves the notion of "caveat emptor" and section 16(4) provides for the annexing to a contract of the implied terms by usage. Section 16(5) provides for the application of the section to a sale through an agent. As mentioned earlier, at common law, implied terms as to quality and fitness in contracts for transfer of property in goods are likely to be similar to those for contracts of sale. Nevertheless, the Consultation Paper recommended that implied terms modelled on section 16 of Cap 26 should be spelt out in the form of legislation for the sake of clarity and consistency. No respondent disagreed with that proposal and hence we so recommend.

Differences with other jurisdictions

5.38 There are, however, also a number of differences in the statutory implied terms applied to contracts for the supply of goods in other jurisdictions. These differences shed some light on how we should formulate the implied terms as to quality and fitness for other kinds of contracts for the supply of goods in Hong Kong, and the Consultation Paper accordingly made the following recommendations:

(a) the reasonable man test should be adopted for "quality";

(b) the list of aspects of "quality" should be non-exhaustive;

(c) in the list of aspects of "quality", the goods are required to be fit for all their common purposes;

(d) the term "satisfactory quality" should replace "merchantable quality";

(e) "state or condition" should be put together with the list of aspects of "quality" in the same sub-section;

(f) the concept of "antecedent negotiation" in section 16(6) of Cap 26 should be followed.

We received no comments on the recommendations in (b), (c) and (e), which are adopted in this Report without modification. We will respond individually to the comments on the other recommendations in the following paragraphs.

(a) the test for the requirement as to "quality"

5.39 First, as to the test for "quality", both section 2(5) of Cap 26 and section 66(2) of the 1974 Act stipulate that goods are of merchantable quality if they are as "fit for the purpose or purposes ... as it is reasonable to expect ...." Section 7(1) of the 1993 Act stipulates that goods are of acceptable quality if they are as "[f]it for all the purposes ... as a reasonable consumer ... would regard as acceptable". Section 4(2A) of the 1982 Act stipulates that "goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory". In other words, both the New Zealand and England and Wales versions postulate a reasonable man test.

5.40 The problem with the tests in both Cap 26 and the 1974 Act is that they may lower the statutory standard of the "quality" required when a supplier can establish that goods of a particular kind (for example, new cars) can reasonably be expected to have a number of minor defects upon delivery. For example, it was held[199] that a car delivered with a slight oil leak in its power-assisted steering system was of merchantable quality. In a subsequent case, the Court of Appeal held[200] that a car delivered with oil seals leaking was unmerchantable within the meaning of the 1979 Act.[201]

5.41 The Law Commission[202] of England and Wales was of the view that, although Rogers v Parish (Scarborough) Ltd made it clear that a car could still be unmerchantable even if it managed to run safely, it was unclear whether every small matter which might be required to be corrected in a complicated new artefact such as a car would render the goods unmerchantable. "Do the words 'as it is reasonable to expect' in section 14(6)[203] really mean that [such minor] defects do not render the car [or any goods] unmerchantable within section 14(2)?"[204]

5.42 The Law Commission recommended the reasonable man test to replace the "as it is reasonable to expect" test and stated:

"The 'reasonable person' would not, in general, find the standard of goods to be 'acceptable' if they had minor or cosmetic defects - certainly if the goods were new. But the test of the reasonable person would also permit a lower standard where only a lower standard could reasonably be demanded - for example, where the goods were second-hand, or 'seconds' sold at a suitably low price. ...

in deciding whether the actual goods meet the standard acceptable to a reasonable person, all the defects in the goods must be taken into account, even though some of them might not have been apparent at the time of sale. A reasonable person who had already bought goods might be tempted to keep them simply through inertia, rather than reject them, despite a defect which appeared in them. This is not the test we intend. The test is whether the goods meet a standard that would be acceptable to a reasonable person as performance of the contract. The question which the definition asks is not whether the reasonable person would find the goods acceptable; it is an objective comparison of the state of the goods with the standard which a reasonable person would find acceptable. This is intended to require a full comparison of the goods with the standard, not merely a comparison limited to what was visible at the time of sale." [205]

5.43 The Sale and Supply of Goods Act 1994 in England and Wales put the above recommendation into effect by amending the tests in the 1979 Act and the legislation concerning other kinds of supply of goods (ie the 1973 Act and 1982 Act). The 1993 Act also adopted the reasonable man test. Professor Atiyah has said that tests which depend so heavily upon standards of reasonableness tend to be somewhat circular in practice.[206] Professor Bridge has also said that the test is circular: goods are of satisfactory quality if a reasonable person would regard them as satisfactory.[207] On the other hand, Alan Wilson has made the following comments:

"Since the test is to be applied to such a wide range of goods it is inevitable that a certain amount of objectivity is necessary. It is therefore, a welcome development that the 'reasonable person' test is expressly incorporated ... [T]he definition of satisfactory quality introduces a reasonable person test understandable to both consumer and supplier, while at the same time providing the necessary element of flexibility."[208]

5.44 In Hong Kong, the existing section 2(5) of Cap 26 stipulates the "as it is reasonable to expect" test for the term "merchantable quality". The Judiciary Administrators’ Office considers that the "reasonable man" test recommended in the Consultation Paper is not as lucid as the present definition of "merchantable quality". That Office also mentions that there is already a line of authorities adopting the "reasonable man" test referred to in the 4th edition of Benjamin's Sale of Goods[209]. The paragraph in question in Benjamin's Sale of Goods refers, however, to section 14 of the Sale of Goods Act 1893 in which the term "merchantable quality" was not defined. The "as it is reasonable to expect" test in Cap 26 is modelled on the 1979 Act, which amended the 1893 Act. The paragraph in Benjamin's Sale of Goods to which reference is made by the Judiciary Administrator’s Office is therefore not directly relevant to the present discussion.

5.45 The Judiciary Administrators’ Office also observes that if the new test is adopted, there is a danger that the courts, without guidance from case law, may adopt diverse approaches in applying the test. We note that the approaches in other common law jurisdictions already appear to be diverse. In England, the "[as] fit for the purpose... as it is reasonable to expect" test for "merchantable quality" was replaced by the "reasonable man" test for "satisfactory quality" in 1994. The legislation on sale of goods in New South Wales, New Zealand and Ontario does not appear to make express mention of any test for "merchantable quality". In respect of other types of supply of goods, the 1974 Act stipulates the "[as] fit for the purpose... as it is reasonable to expect" test for "merchantable quality", but the relevant legislation in New Zealand and England postulate a "reasonable man" test for "acceptable quality" and "satisfactory quality" respectively. The tests for both sale of goods and supply of goods differ in different jurisdictions. Even if the existing "as it is reasonable to expect" test is preserved, it is uncertain whether any directly relevant authority from other jurisdictions will be readily available to assist the Hong Kong courts.

5.46 We agree with the Law Commission that "[the reasonable man] test is a more helpful [test] for retailers, consumers and their advisers while remaining appropriate for more sophisticated buyers and sellers".[210] It can rule out the possibility that it is reasonable to expect, under the existing provision, some minor defects upon delivery of the goods which can then be regarded as merchantable. The test has been criticised as circular. But it provides a yardstick (an objective comparison of the state of the goods with the standard which a reasonable person would find acceptable) to assess the quality of the goods not in isolation, but in the context of their price, any description and all other relevant circumstances. We therefore recommend that the reasonable man test should be adopted for other kinds of supply of goods to be regulated in the Recommended Legislation.

(b) meaning of "quality"

5.47 The second difference concerns the meaning of "quality". Section 66(2) of the 1974 Act stipulates only one aspect of "quality" which is fitness for purpose or purposes. On the other hand, section 2(5) of Cap 26, section 18(3) of the 1982 Act and section 7(1) of the 1993 Act stipulate not just an aspect of fitness for purpose, but also appearance and finish, freedom from minor defects, safety and durability. The list of aspects of "quality" in England and Wales is non-exhaustive since it is expressly qualified by the words, "among others", while the lists in Cap 26 and New Zealand are exhaustive.

5.48 The previous version of the meaning of "quality" in Cap 26 only mentioned fitness for purpose. This was amended in 1994[211] to cover four other aspects of quality similar to the equivalent provisions[212] in England and Wales. The amendment in 1994 did not spell out clearly whether the list is exhaustive. Before the 1994 amendment, the concept of fitness for purpose had already been extended beyond mere functional fitness and was regarded as only one among many aspects of quality.[213] The 1994 amendment put it beyond doubt that the expression "quality" covers at least four aspects other than fitness for purpose.

5.49 To leave room for other possible aspects of quality not included in the statutory list, we recommend that the list of aspects of quality should be expressly stated to be non-exhaustive in the Recommended Legislation. We are attracted to the following recommendation of the Law Commission of England and Wales:

"[w]e recommend a wider list, in which no one element would have priority, in which not all the elements would always be relevant, and which would leave room for other, unlisted, matters to be taken into account".[214]

(c) "fitness for all the purposes ..."

5.50 The third difference relates to "fitness for purpose" within the meaning of "quality". Section 2(5) of Cap 26 and section 66(2) of the 1974 Act require the goods, in order to be merchantable, to be "fit for the purpose or purposes for which goods of that kind are commonly bought". Section 18(3) of the 1982 Act and section 7(1) of the 1993 Act require the goods, in order to be "satisfactory" (or "acceptable"), among other things, to be fit for all the purposes for which goods of the type in question are commonly supplied.

5.51 Before the present requirement as to "fit for the purpose or purposes ..." was introduced to Cap 26 in 1977,[215] the House of Lords had held[216] in 1969 that goods could be merchantable though not fit for all their purposes. With the introduction of the present requirement in 1977, there was ambiguity as to whether the goods must be fit for all their normal purposes. But in 1987 the English Court of Appeal held[217] that goods did not necessarily need to be fit for all their normal purposes in order to be merchantable under the present requirement.

5.52 After referring to this ruling, the Law Commission recommended a change such that goods should be fit for all their normal purposes in order to be merchantable. Its report[218] prompted the Sale and Supply of Goods Act 1994 which introduced such a provision to section 18(3) of the 1982 Act. The Law Commission has stated that as a matter of policy, there should be such a change and has concluded:

"Although not without doubt on the part of some of us, we have reached the conclusion that the latter view is preferable, and that goods of a particular description and price should be fit for all their common purposes unless there is an indication to the contrary. If the buyer has a particular uncommon purpose in mind it is always open to him to make this known to the seller, and rely on section 14(3) of the 1979 Act. If, on the other hand, the seller knows that his goods are not fit for one or more of the purposes for which goods of that kind are commonly supplied, he may ensure that the description of the goods excludes any common purpose for which they are unfit, or otherwise indicates that the goods are not fit for all their common purposes. If he does not do so, and it is not clear from the other circumstances, then the seller may be in breach of the implied quality term if he sells goods which are commonly supplied for two purposes but which are fit for only one."[219]

5.53 Geraint Howells has welcomed the change and has said: "it is pleasing to see that there is a requirement that goods should be fit for all their common purposes."[220] Professor Bridge, however, has argued that the Law Commission should have explored the matter more fully and, in particular, considered whether the change would be as appropriate for commercial as for consumer transactions.[221] We are of the view that there should be no differentiation between commercial and consumer transactions in this respect.

5.54 Professor Bridge has also said that there are uncertainties as to what amounts to "appropriate cases"[222] in which to make a supplier liable in respect of all common purposes, and how to differentiate between common and particular purposes. At the same time, probably because of these uncertainties, academics appear to find that the new requirement allows courts room to manoeuvre. Sir Roy Goode has pointed out that the reference to "appropriate cases" enables suppliers to make it clear in their description of the goods that the goods are not fit for all common purposes.[223] Professor Reynolds has stated that the reference to the purpose for which goods are commonly supplied may preserve some flexibility for courts.[224] Both Professor Bridge[225] and Professor Atiyah[226] are of the view that even applying the new requirement to the Aswan Engineering case, the court would probably find the purpose in question uncommon and come to the same conclusion.

5.55 In addition, Professor Bridge has commented that it may not be appropriate to permit a buyer to reject unwanted goods just because the goods are not fit for a common purpose for which he has no intention to use them. This is especially the case when a buyer has informed the seller that his purpose is a different one.[227] On the other hand, it would seem reasonable for a buyer to expect that the goods are fit for all the purposes for which such goods are commonly supplied. As the Law Commission has pointed out, this is a policy decision as to the side of which the law places greater emphasis. As pointed out above, under the new requirement, even though goods are required to be fit for all their common purposes in order to be merchantable, there is still flexibility for both suppliers and courts.

5.56 We conclude that as a matter of policy, a buyer should be entitled to expect that the goods are fit for all the purposes for which such goods are commonly supplied, even though he may not need the goods for all those purposes himself. We therefore recommend that goods should be fit for all their common purposes in order to be merchantable.

(d) "merchantable quality"

5.57 The fourth difference concerns the term "merchantable quality". Section 16 of Cap 26 and section 71 of the 1974 Act retain the term "merchantable quality". Section 7 of the 1993 Act adopts the term "acceptable quality". Upon the recommendation of the Law Commission,[228] section 4 of the 1982 Act was amended[229] by the Sale and Supply of Goods Act 1994 to replace the term "merchantable quality" with "satisfactory quality".

5.58 The Law Commission was of the view[230] that the term "merchantable" referred to transactions between merchants, was not appropriate for consumer transactions, and was of uncertain meaning and largely obsolete. It further stated:

"the word 'merchantable' was derived from Victorian cases where (putting the matter at its simplest) the question was, 'were the goods of such a quality that one merchant buying them from another, would have regarded them as suitable?' ... [It] was gradually seen not to be suitable for all cases. On its face the word is not suitable for non-mercantile transactions. It became necessary for judges to explain what the word meant. In some cases it was said to mean that the goods had to be fit for their purpose. In other cases it was said that the goods had to be acceptable."[231]

5.59 Some academics have welcomed the replacement of the term "merchantable". Alan Wilson has mentioned that the change "is a simple but effective one ... [and] the outdated term merchantable quality is replaced by the more legitimate satisfactory quality in accordance with consumer expectations."[232] Geraint Howells[233] has stated that the change might bring significant benefits to buyers if the courts treat that as a signal to provide a more purposive application of the term. Jennifer Hamilton has commented: "[c]onsumer groups have generally welcomed the replacement of 'merchantable quality' with an implied term that takes into account such things as freedom from minor defects ...."[234] Iwan Davies[235] has also said:

"[t]he adoption of 'satisfactory' does have the advantage of communicating to consumers the standard required in a more meaningful way than does merchantability."

5.60 These views were shared by the Australian Full Court[236] which held that the term "merchantable quality" was to be given its ordinary meaning, and was to be interpreted without reference to common law definitions. It was unnecessary and undesirable to look to the common law definition of merchantability for the purposes of section 66(2) (about the meaning of merchantable quality) of the 1974 Act. The common law tests relate to saleability of goods which are tests of merchants and are more appropriate to commercial sales. The 1974 Act ought to be interpreted against the background of its remedial character of giving consumers rights and protections which were not available previously.


5.61 However, some academics are lukewarm as to the replacement of "merchantable quality" by "satisfactory quality" since:

"[i]t is a question of judgment whether goods can properly be described as 'merchantable' or 'acceptable' ... or 'satisfactory'. Whichever term is employed does not dispense with the need to devise criteria by which to make that judgment, so that the term chosen is of minor significance in comparison with the specific rules intended to assist the process of decision". [237]

5.62 Brian Childs has pointed out that whether goods are "merchantable", "acceptable" or "satisfactory" is a matter of interpreting the criteria devised behind the label chosen, and the label itself is of less significance. Professor Reynolds has mentioned that the change to "satisfactory quality" involves the substitution of a phrase "which meant something but was inappropriate to commercial disputes by a phrase which as elaborated is little more than circular for any dispute."[238] Professor Atiyah has also been critical:

"The concept of 'satisfactory quality', it must be said, has even less genuine meaning than the concept of 'merchantable quality', and must be fleshed out by the case law in varying circumstances, and unfortunately, as previously suggested, the effect of the new proposals will be to sever this country from the useful lines of authority which have developed in other common law jurisdictions on the meaning of 'merchantability'. Worse still, for many people the word 'satisfactory' implies a fairly mediocre standard ..."[239]

5.63 We have dealt with the comment as to circularity earlier in this chapter in the section dealing with the test for the requirement as to "quality". The Judiciary Administrator’s Office echoes Professor Atiyah’s view that the recommended change from "merchantable" to "satisfactory" in the Consultation Paper would cause the loss of useful lines of authority from other jurisdictions. It should be pointed out that the existing provisions in Cap 26 relating to quality in contracts for the sale of goods already differ from those elsewhere in some respects. It is true that the relevant provisions on sale of goods in New South Wales, New Zealand and Ontario[240] still retain the term "merchantable", but they still require a seller to be dealing in the goods sold by description before the implied terms on merchantable quality apply. In contrast, section 16(2) of Cap 26 and the 1979 Act only require a seller to be selling the goods "in the course of a business". In the context of other types of supply of goods, only section 66(2) of the 1974 Act is the same as that in Cap 26 as discussed above. It seems that the development of the statutory provisions on both sale of goods and supply of goods in different jurisdictions varies. It is not clear whether authorities from other jurisdictions on this point are likely to provide much assistance. Instead, Professor Francis Reynolds has said in relation to the change to "satisfactory quality": "a court can take the new formulation as an invitation to start afresh; or it can refer to the previous case law".[241]

5.64 As to the contention that the adoption of "satisfactory" rather than "merchantable" implies a mediocre standard, we agree with Brian Childs that it is the criteria devised behind the label chosen (but not the label itself) that matter. In any event, "satisfactory" sets a higher standard than "acceptable". Since the term "merchantable" has a strong connotation of, and emphasis on, the saleability of the goods and is not totally in tune with everyday consumer transactions, on balance we still recommend replacing it with "satisfactory", which is a more modern and general expression.

(e) the inclusion of "state or condition"

5.65 The fifth difference relates to the inclusion of "state or condition". In Cap 26, "quality" is defined to include the "state or condition" of the goods, which is put in a separate sub-section of section 2. In section 18(3) of the 1982 Act, "state and condition" is put together with the non-exhaustive lists of aspects of "quality" in the same sub-section. For the sake of clarity and convenience, we recommend that "state or condition" be put together with the list of aspects of "quality" in the same sub-section.

(f) "antecedent negotiations"

5.66 The sixth difference concerns the particular purpose made known to a supplier (seller, transferor, etc depending on the type of contract). In section 16(6) of Cap 26 and section 71(2) of the 1974 Act, the references to a seller include a person by whom any antecedent negotiations are conducted. In section 14(3) of the 1979 Act and section 4(4) of the 1982 Act,[242] the references to a seller are extended to cover "credit-brokers". There is no similar provision in the 1993 Act.

5.67 In England and Wales, in order to be covered by the relevant provisions,[243] a credit-broker must have previously sold to the supplier (seller, transferor, bailor etc, depending on the type of contract) the goods in question. Under section 16(7) of Cap 26, antecedent negotiations means any negotiations or arrangement with a buyer whereby he was induced to make the agreement or which otherwise promoted the transaction. The expression "antecedent negotiations" in Cap 26 covers more situations than the dealings with credit-brokers as adopted in England and Wales. The possible effect of a provision adopting the concept "antecedent negotiations" is wider than that adopting the concept of "credit-brokers".

5.68 The concept of "credit-broker" was introduced by specific provisions in the Consumer Credit Act 1974, and there is no equivalent statute governing consumer credit in Hong Kong. Section 16(6) and (7) of Cap 26 was introduced in 1973 and has been in operation since then. Professor Hugh Beale is of the view that the "antecedent negotiations" concept is vague in the sense that it might be construed as being limited to negotiations carried out by an agent of the supplier. But he finds that vagueness inevitable if there is no provision concerning credit broking in Hong Kong. Unless there is good reason to replace the concept "antecedent negotiations", we recommend following the concept "antecedent negotiations" in Cap 26 for other types of contracts for supply of goods in the Recommended Legislation for the sake of consistency.

Consequential amendment to Cap 26

5.69 We must point out that it will be necessary to amend the equivalent provisions in Cap 26 consequentially for the sake of consistency if the recommendations in paragraphs (a) to (e) above are enacted in the Recommended Legislation.

Contracts of hire

Common law position in Hong Kong

5.70 There is uncertainty in the existing law as to the nature and extent of a bailor's obligations regarding quality and fitness for purpose of the goods hired out. Although there are some decided cases concerning the implied obligations of a bailor in relation to the fitness for the purpose of the goods, the courts have seemed to follow three main lines of thought regarding liability.[244]

Approach A — strict liability for ensuring that goods are reasonably fit for their purposes

5.71 One line of authority suggests that a bailor is strictly liable for ensuring that goods are reasonably fit for the purposes for which they are required. This was the approach taken by Kelly C B in Jones v Page[245] and Francis v Cockerell,[246] Pollock C B in Chew v Jones,[247] and Mathew J in Hyman v Nye[248] and Vogan & Co v Oulton.[249] Under this approach, a bailor is liable even for defects in the goods which he could not possibly have discovered. Under Cap 26, liability is also strict in this sense.[250]

Approach B — as fit as reasonable skill and care can make

5.72 A second line of authority suggests that a bailor is liable unless the goods supplied are as fit for the purposes for which they are required "as reasonable skill and care can make them". This was the approach first taken by the majority judges in Francis v Cockerell[251] and by Lindley J in Hyman v Nye,[252] and the wording was that adopted in Read v Dean.[253] Negligence will be presumed unless it is rebutted and the absence of negligence on a bailor's part is not by itself a defence. A bailor will be liable if the goods are unfit through another's negligence. The duty on a bailor is not as stringent as that under Approach A above.

Approach C — negligence-based

5.73 A third line of authority suggests that a bailor is only liable for the fitness of the goods hired out to the extent that there has been negligence on his part or on the part of those for whom he is responsible. This approach was taken by Piggott B in Jones v Page,[254] and at first instance in Hyman v Nye. This approach seems to have found the least favour.

5.74 Since Read v Dean, the courts seem to have been following the approach that a bailor should supply goods as fit for the purpose for which they are hired as reasonable care and skill can make them. This was the formula of words propounded in Read v Dean. Similar words were used by Upjohn LJ in Astley Industrial Trust Ltd v Grimley[255] which was a case concerning hire purchase of a truck. However, the Court of Appeal held that on the facts of the case the bailor had excluded its liability by the terms of the contract.

5.75 There is no indication in any of these cases that the judges' attention was drawn to the implications of the different approaches.[256] In addition, there is a division of opinion among academics. One academic is of the view that the weight of authority favours absolute liability,[257] while others take a different view.[258] The existing common law position is therefore unclear, a fact alluded to by the Law Commission of England and Wales when commenting on the common law position before the enactment of the 1982 Act.[259]

Australia

5.76 For consumer contracts of hire, there are implied conditions as to quality and fitness for purpose in section 71 of the 1974 Act, since "supply" is defined in section 4 to include "hire". The discussion above under the heading "Contracts for transfer of property in goods" therefore also applies to contracts of hire.

5.77 For non-consumer contracts of hire, the balance of opinion at common law inclines to the view that a bailor is under a duty of absolute care to ensure the quality and fitness for purpose of the goods,[260] and that the term is a condition, rather than a warranty.[261] In Victoria, a condition as to merchantable quality is implied into contracts for the lease of goods.[262]

New Zealand

5.78 The implied conditions as to quality and fitness for purpose in sections 6 to 8 of the 1993 Act apply to consumer contracts of hire, since "supply" is defined in section 2 to include "hire". Hence the discussion above under the heading "Contracts for transfer of property in goods" also applies to contracts of hire.

5.79 For non-consumer contracts of hire, there is no direct case law on the point even though there is an implied warranty that a hirer will enjoy quiet possession for the period of hire.[263]

England and Wales

5.80 The implied terms as to quality and fitness for purpose in section 9 of the 1982 Act read as follows:

"(1) Except as provided by this section and section 10 below and subject to the provisions of any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods bailed under a contract for the hire of goods.

(2) Where, under such a contract, the bailor bails goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this section and section 10 below, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the consideration for the bailment (if relevant) and all the other relevant circumstances.

(3) The condition implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory –

(a) which is specifically drawn to the bailee's attention before the contract is made,

(b) where the bailee examines the goods before the contract is made, which that examination ought to reveal, or

(c) where the goods are bailed by reference to a sample, which would have been apparent on a reasonable examination of the sample.

(4) Subsection (5) below applies where, under a contract for the hire of goods, the bailor bails goods in the course of a business and the bailee, expressly or by implication, makes known –

(a) to the bailor in the course of negotiations conducted by him in relation to the making of the contract, or

(b) to a credit-broker in the course of negotiations conducted by that broker in relation to goods sold by him to the bailor before forming the subject matter of the contract,

any particular purpose for which the goods are being bailed.

(5) In that case there is (subject to subsection (6) below) an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied.

(6) Subsection (5) above does not apply where the circumstances show that the bailee does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the bailor or credit-broker.

(7) An implied condition or warranty about quality or fitness for a particular purpose may be annexed by usage to a contract for the hire of goods.

(8) The preceding provisions of this section apply to a bailment by a person who in the course of a business is acting as agent for another as they apply to a bailment by a principal in the course of a business, except where that other is not bailing in the course of a business and either the bailee knows that fact or reasonable steps are taken to bring it to the bailee's notice before the contract concerned is made."

5.81 As with contracts for the transfer of property in goods, there are implied conditions as to quality and fitness for purpose in both consumer and non-consumer contracts of hire. Section 9 is very similar to section 4 of the 1982 Act, and therefore the discussion above under the heading "Contracts for transfer of property in goods" applies to contracts of hire.

Conclusion

Nature of a bailor's duty and standard of fitness required

5.82 As discussed above, at common law a term as to fitness for purpose will generally be implied, but to what extent it will be implied is unclear as there have been at least three approaches to this question. The consequences differ according to the approach taken. Approach A is strict liability. A bailor of the defective goods will be liable even if the defect could not have been found, however careful and skilful he had been. If Approach C is taken, a bailor will have a defence if he has exercised all reasonable care himself. If Approach B is taken, a bailor might escape liability if he proves that the defect arose without negligence on anybody's part and that the defect was not discoverable by the exercise of reasonable care and skill.[264]

5.83 It must be pointed out that the selection of any one approach determines not only the nature of a bailor's duty (whether it is strict or negligence-based) but also the standard of fitness. Under Approach A, a bailor must ensure that the goods supplied are reasonably fit for the purpose for which they are required, but the goods need not be in perfect condition.[265] If Approach B is adopted, a bailor has to make the goods as fit for use as reasonable skill and care could make them.[266]

5.84 For the following reasons, we recommend Approach A. First, the standard of fitness required under Approach B is arguably higher than that under Approach A[267], requiring a bailor to make the goods as near perfect as is humanly possible,[268] although the liability under Approach B is negligence-based. The Law Commission of England and Wales was of the view that Approach B might occasionally lead to absurd results which could be avoided by adopting Approach A.[269]

5.85 Secondly, as a matter of policy, Approach A is more appropriate as "it is no consolation to a hirer saddled with a defective article to be told that the defect was not discoverable by reasonable care or skill."[270]

5.86 Thirdly, Approach A is appropriate for the sake of consistency with other kinds of supply of goods. The liability of a supplier in relation to the fitness and merchantability of the goods under a contract of sale (section 16 of Cap 26) is strict (Approach A). Under the heading "Contracts for transfer of property in goods" above, we recommend Approach A. In the absence of any clear justification for a distinction between contracts of sale and contracts for transfer of property in goods on the one hand, and contracts of hire on the other, we recommend imposing a strict liability approach (Approach A) for all types of supply of goods in the Recommended Legislation.

Two obligations: quality and fitness for purpose

5.87 The above cases concerning a bailor's obligations under a contract of hire only mentioned "fitness", but not "merchantability". The Law Commission of England and Wales thought[271] that although the courts did not mention both "merchantability" and "fitness for purpose", one could still regard two obligations as being implied: one as to reasonable fitness for ordinary purposes (very close to merchantability), and the other as to fitness for any particular purpose made known to the supplier. Section 16 of Cap 26 implies both obligations as to merchantability and fitness for purpose. For the avoidance of doubt, we recommend spelling out clearly in the Recommended Legislation that for contracts of hire, as in contracts of sale, there are implied terms as to both quality and fitness for purpose.

Condition or warranty

5.88 Although a term as to fitness (and, arguably, merchantability) is implied for a contract of hire under common law, it is not clear whether the implied term is a condition (breach of which entitles a hirer to reject the goods) or a warranty (breach of which entitles a hirer to damages only). The implied terms as to merchantable quality and fitness for a particular purpose under a contract of sale are conditions.[272] We have recommended, under the heading of "Contracts for the transfer of property in goods", that terms as to quality and fitness for purpose to be implied for contracts for the transfer of property in goods should be conditions. We recommend above that the implied terms for a contract of hire are to follow those for a contract of sale and also be consistent with other types of supply of goods. Accordingly, we also recommend that the implied terms as to quality and fitness for a contract of hire should be conditions for the sake of consistency.

Defects made known to the hirer; and "in the course of business"

5.89 The cases show that a bailor is not liable for defects made known to the hirer.[273] A bailor would also not be liable for the unfitness of the goods for a particular purpose where the hirer either did not make the required purpose known or did not rely on the bailor's skill or judgment.[274] The common law position on this is in line with section 16 of Cap 26.

5.90 In all the cases discussed earlier under the heading "Common law position in Hong Kong", the goods were supplied in the course of the bailor's business. Hyman v Nye[275] can be regarded as supporting the proposition that the terms as to quality and fitness for purpose will be implied where goods are supplied to a hirer in the course of business.

Experiences of other jurisdictions

5.91 As discussed under the heading "Contracts for transfer of property in goods", the differences between section 16 of Cap 26 and the equivalent statutory implied terms for other kinds of supply of goods in other jurisdictions shed some light on how we should formulate the implied terms as to quality and fitness for other kinds of supply of goods in the Recommended Legislation. The recommendations are summarised as follows:

(a) the reasonable man test should be adopted for "quality";

(b) the list of aspects of "quality" should be non-exhaustive;

(c) in the list of aspects of "quality", the goods are required to be fit for all their common purposes;

(d) the term "satisfactory quality" should replace "merchantable quality";

(e) "state or condition" should be put together with the list of aspects of "quality" in the same sub-section;

(f) the concept of "antecedent negotiation" in section 16(6) of Cap 26 should be followed.

Hire purchase agreements

Common law position in Hong Kong

Implied term as to quality

5.92 At common law, there is no authority on whether under a hire purchase agreement there is an implied term as to quality. Sir Roy M Goode[276] believes that there is "no reason why such a term should not be implied" since a hirer's position has been equated with that of a buyer in respect of other implied terms namely, title, correspondence with description, quiet enjoyment, etc. Professor Aubrey Diamond has also found it difficult to "see why there should not be such a term at common law".[277]

Implied term as to fitness for purpose

5.93 At common law, where a hirer, expressly or by implication, makes known to the bailor any particular purpose for which the hirer requires the goods so as to show that the hirer relies on the bailor's skill and judgment,[278] there is an implied term as to fitness for purpose.[279] The particular purpose must be pointed out to the bailor before or at the time of the making of the agreement.[280] It appears that there is no requirement for a bailor to supply the goods in the course of his business. There is no direct decision on this, but in Astley Industrial Trust Ltd v Grimley[281] it seemed to have been assumed that it was sufficient for a hirer to show his reliance on a bailor's skill and judgment.

(a) nature of a bailor's liability and standard of fitness required

5.94 As to the nature of a bailor's liability and standard of fitness required, the above discussion on the common law position in Hong Kong under the heading "Contracts of hire" is relevant to hire purchase agreements. In some hire purchase cases, Approach A was favoured,[282] while Approach B was favoured in others.[283] Professor Diamond pointed out that it was not "at all clear ... that the judges in question had their attention directed to the significant difference between sale and hire in this connection". As in contracts of hire, the position concerning hire purchase agreements is therefore not clear.

(b) condition or warranty

5.95 The implied term as to fitness for a particular purpose used to be regarded as a condition in a hire purchase agreement, the breach of which entitled a hirer to terminate the agreement.[284] Subsequently, the court[285] has emphasised the dangers of polarising a contractual term as either a condition or a warranty. Upjohn LJ expressed his opinion on the implied term of fitness in a hire purchase agreement in Astley Industrial Trust Ltd v Grimley:[286]

"I would regard this not as a condition going to the root of the contract but as a stipulation in the nature of a warranty ...."[287]

Australia

5.96 For consumer hire purchase agreements, there are implied conditions as to quality and fitness for purpose in section 71 of the 1974 Act, since "supply" is defined in section 4 to include "hire purchase". The discussion above under the heading "Contracts for transfer of property in goods" therefore applies to hire purchase agreements.

5.97 There are implied conditions for non-consumer hire purchase agreements that the goods are of merchantable quality,[288] and are reasonably fit for such purposes as have been made known to an owner expressly or by implication.[289]

New Zealand

5.98 As regards consumer hire purchase agreements, there are guarantees as to quality and fitness for purpose in sections 6-8 of the 1993 Act, since "supply" is defined in section 2 to include "hire purchase". The discussion above under the heading "Contracts for transfer of property in goods" also applies to hire purchase agreements.

5.99 Sections 12 and 13 of the Hire Purchase Act 1971 provide similar guarantees as to quality and fitness for purpose in respect of non-consumer hire purchase agreements.

England and Wales

5.100 Section 10 of the 1973 Act provides for the implied terms as to quality and fitness for purpose. It reads as follows:

"(1) Except as provided by this section and section 11 below and subject to the provisions of any other enactment, including any enactment of the Parliament of Northern Ireland or the Northern Ireland Assembly, there is no implied term as to the quality or fitness for any particular purpose of goods bailed or (in Scotland) hired under a hire-purchase agreement.

(2) Where the creditor bails or hires goods under a hire-purchase agreement in the course of a business, there is an implied term that the goods supplied under the agreement are of satisfactory quality.

(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.

(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory –

(a) which is specifically drawn to the attention of the person to whom the goods are bailed or hired before the agreement is made,

(b) where that person examines the goods before the agreement is made, which that examination ought to reveal, or

(c) where the goods are bailed or hired by reference to a sample, which would have been apparent on a reasonable examination of the sample;

(3) Where the creditor bails or hires goods under a hire-purchase agreement in the course of a business and the person to whom the goods are bailed or hired, expressly or by implication, makes known –

(a) to the creditor in the course of negotiations conducted by the creditor in relation to the making of the hire-purchase agreement, or

(b) to a credit-broker in the course of negotiations conducted by that broker in relation to goods sold by him to the creditor before forming the subject matter of the hire-purchase agreement,

any particular purpose for which the goods are being bailed or hired, there is an implied term that the goods supplied under the agreement are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the person to whom the goods are bailed or hired does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the creditor or credit-broker.

(4) An implied term as to quality or fitness for a particular purpose may be annexed to a hire-purchase agreement by usage.

(5) The preceding provisions of this section apply to a hire-purchase agreement made by a person who in the course of a business is acting as agent for the creditor as they apply to an agreement made by the creditor in the course of a business, except where the creditor is not bailing or hiring in the course of a business and either the person to whom the goods are bailed or hired knows that fact or reasonable steps are taken to bring it to the notice of that person before the agreement is made.

(6) In subsection (3) above and this subsection –

(a) 'credit-broker' means a person acting in the course of a business of credit brokerage;

(b) 'credit brokerage' means the effecting of introductions of individuals desiring to obtain credit –

(i) to persons carrying on any business so far as it relates to the provision of credit, or

(ii) to other persons engaged in credit brokerage.

(7) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions."

5.101 There are implied conditions as to quality and fitness for purpose in both consumer and non-consumer hire purchase agreements. Section 10 of the 1973 Act is similar to sections 4 and 9 of the 1982 Act, and so the discussion above under the heading "Contracts for transfer of property in goods" applies to hire purchase agreements.

Conclusion

Implied term as to quality

5.102 Although there is no direct authority at common law, academics have suggested that an implied term as to quality should be implied at common law for a hire purchase agreement. As discussed above, there is such an implied term for contracts of sale in Cap 26, and in other jurisdictions for hire purchase agreements. Therefore, we recommend that such a term be implied for hire purchase agreements and be set out clearly in the Recommended Legislation for the sake of certainty, clarity and consistency with contracts of sale under Cap 26 and other types of contracts for the supply of goods.

Implied term as to fitness for purpose

5.103 At common law, such a term is implied for hire purchase agreements, but its nature and extent are not clear. For the following reasons, we recommend that strict liability applies so as to remove any doubt. First, the common law position is not clear and it is necessary to clarify it in the Recommended Legislation. Secondly, as discussed above concerning contracts of hire, adopting Approach B may lead to some absurdity which can be avoided by adopting Approach A. Thirdly, academics generally favour Approach A.[290] Fourthly, Approach A is preferred also for the sake of consistency with contracts of sale under Cap 26 and other types of supply of goods as recommended above.

5.104 We also recommend that the term should be made a condition in the Recommended Legislation to offer more protection to hirers, and for the consistency with contracts of sale and other types of contracts for the supply of goods. Moreover, for consistency with other kinds of supply of goods and for the avoidance of doubt, a hirer must show that the bailor supplies the goods in the course of his business. This is also in line with the provisions of other jurisdictions examined above concerning hire purchase agreements.

Experience from other jurisdictions

5.105 As discussed under the heading "Contracts for transfer of property in goods", the differences between section 16 of Cap 26 and the equivalent statutory implied terms for other kinds of supply of goods in other jurisdictions indicate how we should formulate the implied terms as to quality and fitness for other kinds of supply of goods in the Recommended Legislation. The following is a summary of the recommendations:

(a) the reasonable man test should be adopted for "quality";

(b) the list of aspects of "quality" should be non-exhaustive;

(c) in the list of aspects of "quality", goods are required to be fit for all their common purposes;

(d) the term "satisfactory quality" should replace "merchantable quality";

(e) "state or condition" should be put together with the list of aspects of "quality" in the same sub-section;

(f) the concept of "antecedent negotiation" in section 16(6) of Cap 26 should be followed.

[183] S2(1).

[184] Section 2(5) was replaced in October 1994 by the Sale of Goods (Amendment) Ordinance 1994. Paragraphs (b), (c), (d) and (e) of the new section 2(5) are new and follow to a large extent the wording in paragraphs (b), (c), (d) and (e) of section 14 (2B) of the 1979 Act, as amended by the Sale and Supply of Goods Act 1994. Section 14(2B) refers to goods being of "satisfactory quality" which replaces the previous term of "merchantable quality". It will take some time for case law to develop in England on the meaning of "satisfactory quality". How the case-law on the meaning of "merchantable quality" will develop in Hong Kong remains to be seen since the term "merchantable quality" has been retained but the term now includes concepts incorporated under the term "satisfactory quality", a new term the meaning of which has yet to develop in England.

[185] G H Myers & Co v Brent Cross Service Co [1934] 1 KB 46.

[186] [1946] 2 All ER 691.

[187] [1969] 1 AC 454.

[188] 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] 3 All ER 831"; see Halsbury's Laws of Australia, vol 5 [100-650] note 1.

[189] N E Palmer and F D Rose, "Implied Terms in Consumer Transactions - The Australian Approach" (1977) 26 ICLQ 169, at 173-178.

[190] Law Com No. 95, at para 61-62.

[191] 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.

[192] Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 16. Per Jacobs J: "I do not think the question of using reasonable care arises. Proof that reasonable care was used will not absolve from liability. Therefore, I do not think it necessary to distinguish between latent defects and patent defects." It was held that no warranty should be imported into the contract on the particular facts.

[193] The Laws of New Zealand, Vol 23, at para 54 and note 7.

[194] 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.

[195] "'credit-broker' means a person acting in the course of a business of credit brokerage carried on by him;

'credit brokerage' means the effecting of introductions –
(a) of individuals desiring to obtain credit to persons carrying on any business so far as it relates to the provision of credit; or
(b) of individuals desiring to obtain goods on hire to persons carrying on a business which comprises or relates to the bailment [or as regards Scotland the hire] of goods under a contract for the hire of goods; or
(c) of individuals desiring to obtain credit, or to obtain goods on hire, to other credit-brokers."

Section 18(1) of the 1982 Act.

[196] Geoffrey Woodroffe, Goods and Services - The New Law (1982, at para 3.33) provides an example. A contractor persuades a potential customer to have their products installed and offers credit facilities to be provided by a third party. The potential customer's special requirements will normally be communicated to the contractor. But the contractor may not finish up in a contractual relationship with the customer since the contractor may first supply their materials to the third party, who provides the credit facilities, and who then as transferor will enter into a credit transaction for supply to the customer. Therefore, there is a need to cover the situation where the special requirements are made known to the credit-broker (the contractor) but not the transferor (the third party).

[197] "Business" is defined in section 18(1) to include "a profession and the activities of any government department or local or public authority". In most cases, it should be clear whether a transfer is a business transaction or not.

[198] The usage must fulfil all the tests of a custom and be reconcilable with the terms of the contract. Peter Arlington Partners Ltd v Gosho Co Ltd [1964] 1 Lloyd's Rep 149.

[199] Millars of Falkirk Ltd v Turpie 1976 SLT (Notes) 66. This is a Scottish case and the test of "merchantable quality" at the time was identical to that in the present section 2(5) of Cap 26 ("as it is reasonable to expect" test).

[200] Rogers v Parish (Scarborough) Ltd [1987] 2 WLR 353.

[201] The test of "merchantable quality" in the then 1979 Act was identical to that in the present section 2(5) of Cap 26 ("as it is reasonable to expect" test).

[202] Law Com No 160, 1987, at para 2.13.

[203] The 1979 Act.

[204] Law Com No 160, 1987, at para 2.13.

[205] Law Com No 160, 1987, at paras 3.24 to 3.25. "If a particular type of product was often defective, then a buyer might be taken reasonably to expect this and thus be prevented from making a successful claim under s14(2) - leaving him without any remedy and encouraging a lowering of standards. Hence, the new standard is that which a reasonable person would regard as satisfactory, rather than the standard he might, in practice, expect. At the same time, the new standard is flexible enough to allow a lower standard where the goods are second-hand." Patrick Milne, "Goodbye to Merchantable Quality", [1995] NLJ 683 at 683.

[206] P Atiyah, The Sale of Goods, 10th Ed, 2001, at 167-168.

[207] M Bridge, The Sale of Goods, 1997, at 304.

[208] Alan Wilson, "Faulty Goods, Faulty Law", (1995) 5 CPR 135, at 139 and 141.
[209] Para. 11-037.

[210] Law Com No 160, 1987, at para 3.22.

[211] Sale of Goods (Amendment) Ordinance 1994.

[212] Section 14(2B) of the 1979 Act; section 18(3) of the 1982 Act; section 10(2B) of the 1973 Act.

[213] Rogers v Parish (Scarborough) Ltd [1987] QB 933. The Australian Full Court also held that the reference in the statutory definition to purposes was not limited to functional considerations, but might also include the cosmetic appearance of the goods. Accordingly aesthetic considerations might be taken into account in judging whether or not goods were of merchantable quality; Rasell v Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323 at 348-51.

[214] Law Com No 160, 1987, at para 3.29.

[215] It was introduced by section 2 of the Sale of Goods (Amendment) Ordinance (Ord No 58 of 1977), following the 1973 Act.

[216] Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31.

[217] In M/S Aswan Engineering Establishing Co v Lupdine Ltd [1987] 1 WLR 1, the plaintiff bought waterproofing compound in plastic pails for export to Kuwait from the 1st dependant who had bought the same from the 2nd defendant. When the pails were unloaded in Kuwait, they were stacked to six pails high under the intense sun (60oC-70oC) for some days. The pails collapsed under their own weight and the waterproof compound was lost. The pails were fit for most purposes for which such pails would be used, but not for stacking six pails high in such intense heat. The Court of Appeal held that the pails satisfied the requirement as to "as fit for the purpose or purposes ..." introduced to the Sale of Goods Act by the 1973 Act.

[218] Law Commission, Report on Sale and Supply of Goods (1987), Law Com No 160.

[219] Law Com No 160, 1987, at para 3.36. Professor Bridge has commented that the "Law Commission's abstract reasoning does not make a persuasive case for such a change." M Bridge, "British Business Law - Commercial Sales: The Sale and Supply of Goods Act 1994", [1995] JBL 398, at 401.

[220] Geraint Howells, "The Modernisation of Sales Law? The Sale and Supply of Goods Act 1994", [1995] LMCLQ 191, at 194.

[221] M Bridge, The Sale of Goods, 1997, at 307.

[222] Section 18(3) of the 1982 Act provides: "... the following (among others) are in appropriate cases aspects of the quality of goods ... (a) fitness for all the purposes for which goods of the kind in question are commonly supplied ..."

[223] R Goode, Commercial Law, 2nd Ed, 1995, at 323. But Professor Bridge has mentioned that "a seller's narrow description, which is taken into account in defining the standard of satisfactory quality in a given case, might also be seen as an attempt to exclude liability under section 14(2) [of the 1979 Act]." M Bridge, "British Business Law - Commercial Sales: The Sale and Supply of Goods Act 1994", [1995] JBL 398, at 401.

[224] F Reynolds, Benjamin's Sale of Goods, 5th Ed, 1997, at para 11-050.

[225] M Bridge, The Sale of Goods, 1997, at 307.

[226] P Atiyah, The Sale of Goods, 10th Ed, 2001, at 171.

[227] M Bridge, The Sale of Goods, 1997, at 307.

[228] Law Com No 160, 1987, para 3.19. The Law Commission recommended the term "acceptable quality" in its report. The UK Government preferred "satisfactory quality" to "acceptable quality", the proposer of the Bill suggesting that "satisfactory" was of a higher standard than "acceptable" (Lord Dormand of Easington (22 July 1994) HL Deb, 556 Col 473).

"However, another explanation for the change in terminology was the fear that confusion may arise between the rules on remedies, where acceptance is a familiar term, and the standard expected of goods, if acceptable quality were adopted as the standard." Geraint Howells, "The Modernisation of Sales Law? The Sale and Supply of Goods Act 1994", [1995] LMCLQ 191, at 192. At n 8, Howells said, "[t]his point was made by the DTI following consultation on the Law Commission proposals." For this Report, the discussion in Law Com No 160, 1987 is also relevant since the question is whether the term "merchantable" should be replaced.

[229] The same amendments were made to section 10 of the 1973 Act and section 14 of the 1979 Act by the Sale and Supply of Goods Act 1994.

[230] Law Com No 160, 1987, para 3.5.

[231] Law Com No 160, 1987, para 3.7.

[232] Alan Wilson, "Faulty Goods, Faulty Law" (1995) 5 CPR 135, at 139 and 141.

[233] Geraint Howells, "The Modernisation of Sales Law? The Sale and Supply of Goods Act 1994" [1995] LMCLQ 191, at 191. At 193, he further stated "one of the great practical benefits ... is that consumers will not be met by the technical term 'merchantable quality' and will feel more confident that their understanding of what is 'satisfactory' is as justified as that of the sellers."

[234] Jennifer Hamilton, "Cases and Comment - the Sale and Supply of Goods Act 1994" [1995] JR 385, at 386.

[235] Iwan Davies, Sale and Supply of Goods, 2nd Ed,1996, at 55.

[236] Rasell v Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323, at 348.

[237] Brian Childs, "Goodbye to all that?" (1995) 46 NILQ 232, at 234.

[238] F Reynolds, Benjamin's Sale of Goods, 5th Ed, 1997, at para 11-057. He has also described the change as a "substitution of a less commercial (but in consequence rather circular and anodyne) term for 'merchantable' ..." at para 11-049.

[239] P Atiyah, The Sale of Goods, 10th Ed, 2001, at 181.

[240] See section 19(2) of the Sale of Goods Act 1923 (NSW), section 16(b) of the Sale of Goods act 1908 (New Zealand) and section 15(2) of the Sale of Goods Act, Revised Statutes of Ontario, 1990, c S1.
[241] Benjamin’s Sale of Goods, 5th Ed, 1997, at para 11-057.

[242] The concept "credit broker" also appears in section 9(4) of the 1982 Act and section 10(3) of the 1973 Act. The concept "credit broker" were introduced by the Consumer Credit Act 1974. Ultimately, all the statutes governing the implied terms of various kinds of contracts for the supply of goods include the concept "credit broker" regarding the persons to whom the particular purpose should be made known.

[243] Section 14(3) of the 1979 Act; section 4(4) of the 1982 Act; section 9(4) of the 1982 Act and section 10(3) of the 1973 Act.

[244] Law Commission, Law of Contract, Implied Terms in Contracts for the Supply of Goods, Working Paper No 71, 1977, at para 49. See also G W Paton, Bailment in the Common Law, 1952, at 292.

[245] In Jones v Page [1867] 15 LT (NS) 619, the plaintiff, an inn-keeper, took on hire from the defendant an omnibus which was held to be unfit for the journey. The court held the defendant liable. The opinions of the judges differed. Kelly C B thought that the vehicle should be safe and fit for the purpose. Kelly C B has said at 620, "a person letting out a carriage for hire does, in law, undertakes that it shall be reasonably and duly safe and fit for the particular purpose ...." He was therefore of the opinion that the owner, as to fitness for purpose, was under a similar strict liability as that under contracts for the sale of goods.

[246] Francis v Cockerell [1870] LR 5 QB 501, dealt with occupier's liability but the reasoning in the judgment of Kelly C B was clearly based on the analogy of hire. The defendant had engaged contractors to erect a stand at a race course. The contractors did the work negligently but the defendant did not know this and the defendant was not personally negligent in this respect. Members of the public, of whom the plaintiff was one, paid the defendant to use the stand to watch the races and were injured when the stand collapsed. The issue was whether the defendant was liable to the plaintiff for breach of contract and it was held unanimously that he was. Kelly C B gave the leading judgment at 504, "I do not hesitate to say that I am clearly of the opinion, as a general proposition of law, that when one man engages another to supply him with a particular article or thing, to be applied to a certain use and purpose, in consideration of a pecuniary payment, he enters into an implied contract that the article or thing shall be reasonably fit for the purpose for which it is to be used and to which it is to be applied." It seems that Kelly C B took the same approach as he had done in Jones v Page.

[247] In Chew v Jones [1847] 10 LT (OS) 231, a horse was hired out but proved to be unfit for the journey for which it had been hired. Pollock CB found in favour of the hirer. He said, "[I]f a horse or carriage be let out for hire, for the purpose of performing a particular journey, the party letting warrants that the horse or carriage, as the case may be, is fit and proper and competent for such a journey." Pollock C B's approach was therefore similar to the approach of Kelly C B in Jones v Page.

[248] In Hyman v Nye [1881] 6 QBD 685, the defendant hired out a carriage to the plaintiff for a journey. On the journey a bolt in the carriage broke and there was an accident. The plaintiff appealed and his appeal was allowed on the ground that the defendant's duty was higher than that of "reasonable care" and that the duty had been broken. The appeal judges took different approaches when they allowed the appeal. Mathew J was inclined to a strict liability approach similar to that under a contract of sale. He has said at 689, "It appears to me that the question which the jury ought to have been asked was, whether the carriage was, in fact, reasonably safe when it was hired to the plaintiff. The cases ... seem to show that there is no distinction in this respect between contracts for the sale and for the hire of an article for a specific purpose, where trust is reposed in the person who, in the ordinary course of business sells or lets to hire."

[249] In Vogan & Co v Oulton [1898] 79 LT 384, the plaintiffs hired 3000 sacks from the defendant for use in unloading a cargo of peas. One of the plaintiff's employees was injured when one of the sacks full of peas broke while being hoisted. Wright J held the defendant liable to the plaintiffs for breach of an implied term that the sacks should be reasonably fit for the purpose for which they were supplied. This seems to be a strict liability approach, similar to Kelly C B's approach in Jones v Page and Francis v Cockerell.

[250] The point is illustrated by Frost v Aylesbury Dairy Co [1905] 1 KB 608 in which case the milk sold contained typhoid germs. No skill or care could have enabled the dairy company to detect the germs, having regard to the state of medical knowledge at that time. Nevertheless, the