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Hong Kong Law Reform Commission |
6.1 In this chapter, we first examine the implied term as to supply by
sample in section 17 of Cap 26. Then, in respect of this implied term, we
examine the three types of contracts for supply of goods recommended in Chapter
2, namely, contracts for transfer of property in goods, contracts of hire and
hire purchase agreements.
6.2 For each of these three types of contracts,
we first examine the common law position in Hong Kong and then the position in
Australia, New Zealand and England and Wales. We also examine the relevant
comments of academics and overseas law reform bodies.
6.3 We have
received no specific comment in relation to the implied terms on supply by
sample and the two recommendations made in the Consultation Paper in respect of
contracts for transfer of property in goods and contracts of hire. We
accordingly retain these two recommendations unchanged. The Hong Kong Bar
Association has, however, made some remarks in respect of hire purchase
agreements, similar to those in Chapter 4. As in that chapter, we come to the
conclusion that the recommendation in respect of hire purchase agreements in the
Consultation Paper needs no alteration. The recommendations for each of the
three types of contracts are as follows:
(a) contracts for transfer of property in goods – Recommendation 15;
(b) contracts of hire – Recommendation 16; and
(c) hire purchase agreements – Recommendation 17.
6.4 The undertakings as to correspondence with sample are set out in
section 17 of Cap 26 as follows:
"(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect.
(2) In the case of a contract for sale by sample –
(a) there is an implied condition that the bulk shall correspond with the sample in quality;
(b) there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
(c) there is an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample."
6.5 In
a contract for the sale of goods by sample, there is an implied condition
under section 17 that the goods will correspond with the sample in quality and
will be free from any defect making them unmerchantable which would not be
apparent on reasonable examination of the sample. There is also an implied
condition that the buyer shall have a reasonable opportunity of comparing
the bulk with the
sample.[291]
6.6 As discussed in Chapter 3 on "Implied terms about title", in
contracts of barter the terms to be implied at common law would be similar to
those implied for a contract of sale by Cap 26 in its original version. Also as
discussed in that chapter, it is clear from both Dodd and Dodd v Wilson
and McWilliam[292] and
Young & Marten Ltd v McManus Childs
Ltd[293] 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.
Therefore, at common law, there should be an implied term as to supply by sample
similar to that for contracts of sale, for contracts of barter, contracts for
work and materials and in general for contracts for the transfer of property in
goods.
6.7 The implied term as to supply by sample provided in section 72 of
the 1974 Act reads as follows:
"Where in a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer there is a term in the contract, expressed or implied, to the effect that the goods are supplied by reference to a sample:
(a) there is an implied condition that the bulk will correspond with the sample in quality;
(b) there is an implied condition that the consumer will have a reasonable opportunity of comparing the bulk with the sample; and
(c) there is an implied condition that the goods will be free from any defect, rendering them unmerchantable, that would not be apparent on reasonable examination of the sample."
6.8 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.[294] This implied term
only operates where there is an express or implied term in the contract that the
goods are supplied by reference to a sample. The mere fact that a customer has
been shown a sample before the contract is not
sufficient.[295] This implied
term only applies where the goods are supplied "in the course of a
business".[296]
6.9 As the
1974 Act only applies to consumer transactions, the implied term as to supply by
sample applies to consumer transactions only. Non-consumer transactions of
supply of goods are governed by common law. Although no direct authority can be
found on this for barter, the Australian court may follow the views of
Blackburn[297] and
Chalmers[298] to the effect that
the common law obligations of a seller apply to a supplier of a contract of
barter. Similarly, no direct authority can be found on supply by sample in
contracts for work and materials. But terms as to fitness for purpose and good
quality are implied for this type of
contract.[299] It would seem
reasonable to suppose that the Australian court would also imply a term as to
supply by sample similar to that implied for a sale of goods
contract.
6.10 The implied term as to supply by sample is provided in section 10
of the 1993 Act which reads as follows:
"(1) Subject to section 41 of this Act, the following guarantees apply where goods are supplied to a consumer by reference to a sample or demonstration model:
(a) That the goods correspond with the sample or demonstration model in quality; and
(b) That the consumer will have a reasonable opportunity to compare the goods with the sample.
(2) If the goods are supplied by reference to a sample or demonstration model as well as by description, the guarantees in this section and section 9 of this Act will both apply.
(3) 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."
6.11 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 virtue of section 15. The implied guarantees are that the goods
will correspond in quality with the sample or demonstration model if it is a
supply by reference to a sample or demonstration model, and a consumer will have
a chance to compare the goods with the sample or model. If the goods are
supplied by reference to a sample or demonstration model as well as by
description, the goods should correspond with the sample or model as well as the
description. These implied guarantees only apply where the goods are supplied
in trade (section 41) which is defined in section 2(1).
6.12 As the 1993
Act only applies to consumer transactions, non-consumer contracts for transfer
of property in goods are governed by common law. The law relating to barter is
undeveloped in New Zealand. The court "seems inclined to deal with such
contracts as if they were analogous to contracts of
sale".[300] As to contracts
for work and materials, there is no direct authority as to implication of a term
relating to supply by sample. Since terms as to fitness for purpose and good
quality are implied,[301] one
might expect the New Zealand court to imply a term as to supply by sample
similar to that implied for a sale of goods contract.
6.13 The implied term as to supply by sample is provided in
section 5 of the 1982 Act. It reads as follows:
"(1) This section applies where, under a contract for the transfer of goods, the transferor transfers or agrees to transfer the property in the goods by reference to a sample.
(2) In such a case there is an implied condition –
(a) that the bulk will correspond with the sample in quality; and
(b) that the transferee will have a reasonable opportunity of comparing the bulk with the sample; and
(c) that the goods will be free from any defect, making their quality unsatisfactory which would not be apparent on reasonable examination of the sample.
.....
(4) For the purposes of this section a transferor transfers or agrees to transfer the property in goods by reference to a sample where there is an express or implied term to that effect in the contract concerned."
6.14 Section
5 is similar to section 15 of the 1979 Act and section 17 of Cap 26. To be a
transfer by sample, according to section 5(4), there must be an express or
implied term to that effect in the contract. There is no need for the transfer
to be made in the course of a business. If there is a transfer by sample, the
conditions in subsection (2) will be implied. As to the implied condition of
correspondence with the sample in quality, strict compliance is
required[302] and correspondence
or not depends on the normal trade practice of the nature of the examination
carried out.[303]
6.15 In
respect of the implied condition of "satisfactory quality", the transferee
cannot complain of defects making the quality of the goods unsatisfactory which
a reasonable examination of the sample ought to reveal (subsection (2)(c)). In
other words, a transferee by sample can complain only of latent defects which a
reasonable examination cannot reveal. The term "unsatisfactory" shall be
construed in light of the term "satisfactory" discussed in Chapter 5 on "Implied
terms about quality or fitness".
6.16 From the above discussion, it is clear that in other
jurisdictions there are also implied terms as to supply by sample for either
contracts of barter and contracts for work and materials in particular or
contracts for transfer of property in goods in general. The provisions in those
other jurisdictions, especially section 5 of the 1982 Act, are similar to the
corresponding section 17 of Cap 26 and can provide a blueprint for other
types of contracts for the supply of goods in the Recommended Legislation.
6.17 One point worth mentioning is that the implied condition as to
"quality" in section 17(2)(c) of Cap 26 provides that a buyer
(transferee/consumer[304]) by
sample can complain only of defects which a reasonable examination of the sample
cannot reveal. On the other hand, a buyer
(transferee/consumer[305]) not by
sample, by relying on the general requirement as to quality in section 16 of
Cap 26, can complain of any defects except those which his actual
examination ought to reveal. It must be noted that a buyer (transferee) by
sample cannot rely on the general "quality" provision in section 16 of
Cap 26 (section 4 of the 1982 Act) as he is barred from doing so by section
16(2)(c) of Cap 26 (section 4(3)(c) of the 1982
Act).[306]
6.18 This means
that a buyer (transferee/consumer) by sample cannot complain of defects which a
reasonable examination of the sample can reveal (the "reasonable examination of
the sample" test), even though he has not actually examined the sample. A buyer
(transferee/consumer) not by sample, on the other hand, can rely on the general
"quality" provision. The "reasonable examination of the sample" test is
irrelevant. Only when he has actually examined the sample would whether that
examination can reveal the defects become relevant. An academic writer has
suggested that[307] this less
generous treatment for buyers (transferees) by sample is not unreasonable
"because it can surely be expected that the sample should be examined".
In a transfer by sample, it is fair to expect a transferee to examine the
sample. If the defect is not apparent on a reasonable examination of the
sample, the transferee is protected by the implied condition as to supply by
sample. Therefore, we recommend that the implied condition as to "quality" in
section 17(2)(c) of Cap 26 should be followed for other types of contracts for
the supply of goods in the Recommended Legislation.
6.19 The term "unmerchantable" is used in both section 17 of
Cap 26 and section 72 of the 1974 Act, while "unsatisfactory" is used in
section 5 of the 1982 Act. The change from "merchantable" to "satisfactory" was
discussed in Chapter 5 under "Implied terms about quality or fitness". Since we
have recommended the change to "satisfactory" there, we recommend the same
change in this chapter.
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Recommendation 15
We recommend that:
(a) a contract for transfer of the property in goods by sample is one
where there is an express or implied term in the contract to that effect;
(b) in both consumer and non-consumer contracts for transfer of the
property in goods by sample, implied conditions similar to those in section 17
of Cap 26 should be provided, namely:
(i) that the bulk shall correspond with the sample in quality; |
6.20 There is little case law on the implied term as to hire by
sample, but there is some support for the proposition that implied terms similar
to those in contracts for the sale of goods should apply. The position remains
unclear, however.[308]
6.21 An implied condition as to hire by sample is provided in section
72 of the 1974 Act for consumer contracts of hire, since "supply" is defined in
section 4 to include "hire". Thus, the discussion above under the heading
"Contracts for transfer of property in goods" also applies to contracts of hire.
For non-consumer contracts of hire, in Victoria, where a bailor bails goods by
sample, there is an implied condition that the goods will correspond with the
sample.[309]
6.22 The implied guarantee as to hire by sample in section 10 of the
1993 Act applies to consumer contracts of hire, since "supply" is defined in
section 2 to include "hire". The discussion under the heading "Contracts for
transfer of property in goods" therefore applies to contracts of hire. There is
no direct case law regarding implied terms for non-consumer contracts of hire by
sample, even though there is an implied warranty that a hirer will enjoy quiet
possession for the period of
hire.[310]
6.23 The implied term as to hire by sample is provided in section 10
of the 1982 Act as follows:
"(1) This section applies where, under a contract for the hire of goods, the bailor bails or agrees to bail the goods by reference to a sample.
(2) In such a case there is an implied condition –
(a) that the bulk will correspond with the sample in quality; and
(b) that the bailee will have a reasonable opportunity of comparing the bulk with the sample; and
(c) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.
...
(4) For the purposes of this section a bailor bails or agrees to bail goods by reference to a sample where there is an express or implied term to that effect in the contract concerned."
6.24 This
provision is almost identical to that in section 4 of the same Act concerning
contracts for transfer of property in goods. The discussion above under the
heading "Contracts for transfer of property in goods" also applies to contracts
of hire.
6.25 In Australia, New Zealand and England and Wales there are implied
terms as to hire by sample and their provisions are similar to the corresponding
section 17 of Cap 26. As discussed above under the heading "Contracts for
transfer of property in goods", section 17 of Cap 26 should be the blueprint for
other types of contracts for the supply of goods in the Recommended Legislation,
and the discussion under that heading should accordingly apply to contracts of
hire.
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Recommendation 16
We recommend that:
(a) a contract of hire by sample is one where there is an express or
implied term in the contract to that effect;
(b) in both consumer and non-consumer contracts of hire by sample,
implied conditions similar to those in section 17 of Cap 26 should be provided,
namely:
(i) that the bulk shall correspond with the sample in quality; |
6.26 Where goods are let on hire purchase by reference to a sample,
there is no authority on whether there is any implied term as to supply by
sample imported to the contract. However, Sir Roy
Goode[311] is of the view that it
is reasonable to suppose that implied conditions similar to those implied for a
contract of sale apply.
6.27 In relation to consumer hire purchase agreements, an implied
condition as to supply by sample is provided in section 72 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. The position is less clear as to
non-consumer hire purchase agreements, since there is no statutory implied term
in the relevant Hire-Purchase
Acts.[312]
6.28 Since "supply" is defined in section 2 to include "hire
purchase", the implied guarantee as to supply by sample provided in section 10
of the 1993 Act applies to consumer hire purchase agreements. The discussion
under the heading "Contracts for transfer of property in goods" applies to hire
purchase agreements accordingly. For non-consumer hire purchase agreements,
section 14(1) of the Hire Purchase Act 1971 provides similar
guarantees.
6.29 The implied term as to supply by sample is provided in section 11
of the 1973 Act as follows:
"(1) Where under a hire-purchase agreement goods are bailed or (in Scotland) hired by reference to a sample, there is an implied term –
(a) that the bulk will correspond with the sample in quality; and
(b) that the person to whom the goods are bailed or hired will have a reasonable opportunity of comparing the bulk with the sample; and
(c) that the goods will be free from any defect making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample.
(2) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition."
6.30 This
provision is almost identical to that in section 4 of the 1982 Act concerning
contracts for transfer of property in goods. Therefore, the discussion under
the heading "Contracts for transfer of property in goods" applies to hire
purchase agreements.
6.31 In Australia, New Zealand and England and Wales there are implied
terms as to hire purchase by sample which are similar to those provided in
section 17 of Cap 26. As discussed under the heading "Contracts for transfer of
property in goods", section 17 of Cap 26 should be the blueprint for other types
of contracts for the supply of goods in the Recommended Legislation, and
accordingly the discussion under that heading should apply to hire purchase
agreements. The Consultation Paper accordingly made a recommendation to this
effect. The Hong Kong Bar Association welcomes that recommendation but observes
that for the same reason (if not with more force) which applies to the implied
terms as to correspondence with description in Chapter 4, the concept of
"antecedent negotiations" should be made applicable to the implied terms as to
supply by sample. The Bar Association believes that if a sample is involved, it
is highly unlikely that a finance company will be involved with the sample.
Hence, unless the concept of "antecedent negotiations" is applied, the
recommended implied terms as to supply by sample may not afford the protection
intended.
6.32 The issues relating to the application of the "antecedent
negotiations" concept and the creation of an agency relationship between finance
companies and dealers have been discussed in Chapter 4. We conclude there that
a careful balancing of the interests of credit providers, hirers and dealers is
needed, and that a comprehensive review of the hire purchase law is called for,
rather than piecemeal reform.
6.33 Furthermore, the purpose of adding the
concept of "antecedent negotiation" to section 16 of Cap 26 is to cover the case
where a particular purpose for obtaining the goods is mentioned to a person
other than the seller. In Australia, England and New Zealand, the relevant
legislation does not apply this concept in respect of hire purchase agreements
to the implied terms on supply by sample. For these reasons, we have concluded
that our original recommendation in the Consultation Paper should be retained
unchanged.
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Recommendation 17
We recommend that:
(a) a hire purchase by sample is one where there is an express or
implied term in the agreement to that effect;
(b) in both consumer and non-consumer hire purchase by sample, implied
conditions similar to those in section 17 of Cap 26 should be provided, namely:
(i) that the bulk shall correspond with the sample in quality; |
[291] S17(2)(b). Section 15(2)(b) of the 1979 Act, which corresponds to paragraph (b) of section 17(2), has been repealed by the Sale and Supply of Goods Act 1994 because section 35 of the Act has been substantially amended to set out a buyer's right to examination before acceptance. Amendments similar to those in the new section 35 of the 1979 Act have been made to section 37 of Cap 26 but section 17(2)(b) has not been repealed.
[292] [1946] 2 All ER 691.
[293] [1969] 1 AC 454.
[294] As mentioned in Chapter 2, section 74 separately provides for some implied terms for contracts for work and materials. But it does not provide for the implied term as to supply by sample. See Chapter 5 for the text of section 74.
[295] L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (Asia) Ltd (1956) SR (NSW) 81 at 87 per Street CJ. It must be shown that the sample was produced as a warranty that the bulk of the goods would correspond with it, and not just to enable the consumer to form a reasonable judgment about the goods. R W Cameron and Co v Slutzkin Pty Ltd (1923) 32 CLR 81 at 89 per Isaacs J.
[296] According to 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.
[297] Lord Blackburn, Blackburn's Contract of Sale, 3rd Ed, 1910, at ix.
[298] Michael Mark, Chalmers Sale of Goods, 18th Ed, 1981, at 82-83.
[299] 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.
[300] The Laws of New Zealand, Vol 23 at para 54 and note 7.
[301] The Laws of New Zealand, Vol 2 at para 74. Batchelor's Pram House Ltd v Mckenzie Brothers Electrical Ltd [1962] NZLR 545.
[302] In E and S Ruben Ltd v Faine Bros and Co Ltd [1949] 1 KB 254 (a sale of goods case), the buyers were held entitled to reject rolls of rubber which, not corresponding with the sample, were crinkly and hard. It was held irrelevant that the rubber, by a simple process of warming, could be made to correspond with the sample.
[303] According to Hookway & Co v Alfred Isaacs and Sons [1954] 1 Lloyd's Rep 491, if the normal trade practice is for a sample to be subjected to visual examination only, there is no breach of the implied condition if the non-correspondence is not discoverable by such visual examination.
[304] There are equivalent provisions in section 5(2)(c) of the 1982 Act (transferee) and section 72(c) of the 1974 Act (consumers), but there is no equivalent provision in the 1993 Act.
[305] There are equivalent provisions in section 4 of the 1982 Act and section 71 of the 1974 Act.
[306] There is no equivalent debarring provision in the 1974 Act.
[307] Iwan Davies, Sale and Supply of Goods, 2nd Ed, 1996.
[308] See Astley Industrial Trust Ltd v Grimley [1963] 1 WLR 584, a hire-purchase case, per Pearson L J at 595, Upjohn l J at 597 and Ormerod L J at 600; Reardon Smith Line Ltd v YngvarHansen-Tangen [1976] 1 WLR 989, per Viscount Dilhorne, at 1000.
In England and Wales, on consultation, there was general support for the view of the Law Commission that the terms implied at common law as regards correspondence to description and sample should substantially be the same as the terms implied by statute in contracts for sale. See Law Commission, Report on Implied Terms in Contracts for the Supply of Goods, Law Com No 95, 1979, at para 86.
[309] (Vic) Goods Act 1958
s104. However, in the Northern Territory, South Australia and Western
Australia, such an implied condition is implied into consumer contracts only:
(NT) Consumer Affairs and Fair Trading Act 1990 s63; (SA) Consumer Transactions
Act 1972 s8(3); (WA) Fair Trading Act 1987 s37. There is no equivalent
provision in other
jurisdictions.
[310] The
Laws of New Zealand, "Bailment", at para
58.
[311] R M Goode,
Hire-Purchase Law and Practice, 2nd Ed, 1970, at 218.
[312] (QLD) Hire-Purchase Act 1959; (TAS) Hire-Purchase Act 1959; (VIC) Hire-Purchase Act 1959; (WA) Hire-Purchase Act 1959.