The Law Reform Commission
of Hong Kong
Supply of Goods Sub-Committee
Consultation Paper
Contracts for the Supply of Goods
This consultation paper can be found on the Internet at: http://www.info.gov.hk/hkreform.
Mr Byron Leung, the Secretary to the Sub-committee, was principallyresponsible for the writing of this consultation paper.
December 2000
This Consultation Paper has been prepared by the Supply of Goods Sub-committee of the Law Reform Commission. It does not represent the final views of either the Sub-committee or the Law Reform Commission, and is circulated for comment and criticism only.
The Sub-committee would be grateful for comments on this Consultation Paper by 28 February 2001. All correspondence should be addressed to:
The Secretary
The Supply of Goods Sub-committee
The Law Reform Commission
20th Floor, Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
Telephone: (852) 2528 0472
Fax: (852) 2865 2902
E-mail:
It may be helpful for the Commission and the Sub-committee, either in discussion with others or in any subsequent report, to be able to refer to and attribute comments submitted in response to this Consultation Paper. Any request to treat all or part of a response in confidence will, of course, be respected, but if no such request is made, the Commission will assume that the response is not intended to be confidential.
Anyone who responds to this Consultation Paper will be acknowledged by name in the subsequent report. If an acknowledgement is not desired, please indicate so in your response.
The Law Reform Commission
of Hong Kong
Consultation paper on
contracts for the supply of goods
______
CONTENTS
/ Page /Preface / 1
Terms of reference / 2
Layout of this Paper / 3
1. Existing statutory provisions regulating implied terms in contracts for the sale of goods and for the supply of goods, and the need for further legislation / 4
Overview / 4
Existing statutory provisions regulating implied terms in contracts for the sale of goods and contracts for the supply of goods / 4
The need for further legislation on implied terms for supply of goods / 6
2. What are contracts for the supply of goods / 11
Overview / 11
Introduction / 11
Contracts for the transfer of property in goods / 13
Contracts of hire of goods / 19
Hire purchase agreements / 22
What are "goods" / 31
Computer software / 32
3. Implied terms to be included in the Recommended Legislation – implied terms about title, etc / 38
Overview / 38
Undertakings as to title under Cap 26 / 39
Contracts for the transfer of property in goods / 40
Contracts of hire / 51
Hire purchase agreements / 55
4. Implied terms to be included in the Recommended Legislation – correspondence with description / 64
Overview / 64
Correspondence with description under Cap 26 / 64
Contracts for the transfer of property in goods / 65
Contracts of hire / 69
Hire purchase agreements / 71
5. Implied terms to be included in the Recommended Legislation - implied terms about quality or fitness / 74
Overview / 74
Implied undertakings as to quality or fitness under Cap 26 / 75
Contracts for the transfer of property in goods / 77
Contracts of hire / 99
Hire Purchase Agreements / 109
6. Implied terms to be included in the Recommended Legislation - supply by sample / 117
Overview / 117
Correspondence with sample under Cap 26 / 117
Contracts for the transfer of property in goods / 118
Contracts of hire / 123
Hire Purchase Agreements / 126
7. Remedies for breaches of the implied terms / 129
Overview / 129
Remedies for breaches of implied terms in contracts of sale of goods in Hong Kong / 129
Australia / 133
New Zealand / 135
England and Wales / 140
Conclusion / 144
8. Exclusion of liability / 160
Overview / 160
Exclusion of liability in contracts of sale of goods and other contracts for the supply of goods in Hong Kong / 160
Australia / 164
New Zealand / 166
England and Wales / 167
Conclusion / 170
9. Miscellaneous amendments concerning contracts for the sale of goods / 175
Overview / 175
Sale of goods forming part of a bulk / 176
Rights of partial rejection / 203
Statutory exception to the nemo dat rule: sale in market overt / 211
Remedies for delivery of wrong quantity / 217
Acceptance of goods / 220
A reasonable opportunity of comparing the bulk with the sample / 223
Concluding observations / 224
Annex 1 / 226
Comparison Table of Statutory Implied Terms in Contracts for the Sale and Supply of Goods / 226
Annex 2 / 227
(1) Complaint Statistics on Hire of Goods / 227
(2) Complaint Statistics on Hire Purchase of Goods / 227
(3) Complaint Statistics on Contracts for Work and Materials / 228
Annex 3 / 229
Complaint Statistics on Computer Software / 229
iii
Preface
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1. The Law Reform Commission issued a report on Sale of Goods and Supply of Services in February 1990.[1] Based on the recommendations in the report, three ordinances, namely, the Sale of Goods (Amendment) Ordinance 1994,[2] the Supply of Services (Implied Terms) Ordinance (Cap 457) and the Unconscionable Contracts Ordinance (Cap 458) were enacted in 1994.
2. The Sale of Goods (Amendment) Ordinance 1994 amended the Sale of Goods Ordinance (Cap 26). The major amendments included a new definition of "merchantable quality", and clarification of a buyer's right to reject defective goods where he has not had a reasonable opportunity to examine the goods, even after a sub-sale of the goods. The Unconscionable Contracts Ordinance (Cap 458) empowers courts to give relief in contracts for sale of goods or the supply of services where the contracts are found to be unconscionable.
3. The Supply of Services (Implied Terms) Ordinance (Cap 457) makes a contract for the supply of services subject to certain statutory implied terms. A contract for the supply of services is defined, among others, as a contract under which a person agrees to carry out a service, whether or not goods are also –
(i) transferred or to be transferred; or
(ii) bailed or to be bailed by way of hire,
under the contract, and whatever is the nature of the consideration for which the services are to be carried out.[3]
4. The effect of this definition is that the "service" element of contracts for services is caught by Cap 457 whether or not there is any "goods" element accompanying the supply of the service. The implied terms under Cap 457 (as to care and skill, time for performance and consideration) apply only to the "service" element under such contracts. Cap 26 does not apply to the goods element (if any) under such contracts. It is because Cap26 only covers goods sold under a contract of sale which is a contract with monetary consideration where the main object of the contract is to transfer, or to agree to transfer, the property in goods to the buyer. In other words, there is no statutory implied term which covers the "goods" element where goods are supplied as part of a contract for the supply of services.
5. Apart from contracts for the supply of services with ancillary goods mentioned above and contracts of sale, there are other types of contracts for the supply of goods under which property or possession of goods passes. Indeed, there are various types of contracts for the supply of goods (other than sale). For example, there are contracts of barter, contracts of hire, hire purchase agreements, etc. However, as regards implied undertakings by suppliers of goods, they are implied under Cap26 only in contracts of sale but not other types of contracts for the supply of goods. Hence there are no statutory implied undertakings for contracts for work and materials, contracts of barter, contracts of hire, hire purchase agreements, etc. These contracts are regulated by common law. Although academics and the courts have supported the implication of those obligations in contracts for supply of goods (other than sale), we will see in the following chapters that there remain significant gaps in the law.
Terms of reference
6. The Secretary for Justice and the Chief Justice have thought it appropriate to review the law governing contracts for the supply of goods and they have referred the topic to the Law Reform Commission with the following terms of reference:
"To review the law governing contracts for the supply of goods and to consider such reform as may be necessary".
7. On 4 June 1998, the Law Reform Commission appointed a sub-committee to examine the current state of law and to make recommendations. The members of the Sub-committee are:
Hon Mr Justice Bokhary PJ(Chairman) / Court of Final Appeal
Mr Eric Cheung / Assistant Professor
Department of Professional Legal
Education
University of Hong Kong
Mr Joseph Fok / Senior Counsel
Mr Paul Kent / Assistant Professor
Department of Building & Real
Estate
Hong Kong Polytechnic University
Mr K M Li / Deputy Chief Executive
Consumer Council
Mr Richard Luk / Principal Assistant Secretary
Economic Services Bureau
Mr David Murray / Group Legal Manager
The Dairy Farm Group
Mr Steve Page / Deputy Managing Director
Wayfoong Finance Limited
Mr Adrian Wong / Consultant
Messrs Chao & Chung
Mr Byron Leung / Secretary to the Sub-committee
Layout of this Paper
8. Chapters 1 – 8 are mainly concerned with contracts for the supply of goods other than sale and in particular, with the terms to be implied in them. There are various types of terms which can be implied in contracts for the supply of goods. In these chapters, we only discuss the implied obligations of suppliers in respect of the goods. We review the existing law on supply of goods in Hong Kong and then consider the positions of other jurisdictions to examine how Hong Kong's law on supply of goods may be improved.
9. We discuss in Chapter 1 the existing provisions regulating implied terms in contracts for sale of goods and the need for further legislation for other kinds of supply of goods (the "Recommended Legislation"). In Chapter 2, we explain the expression "contracts for the supply of goods". In Chapters3 to 6, we discuss the implied terms to be put into the Recommended Legislation, namely, implied terms about title, correspondence with description, implied terms about quality and fitness, and correspondence with the sample. We then discuss the remedies for breaches of the statutory implied terms in the Recommended Legislation in Chapter7. In Chapter 8, we discuss the exclusion of liability and the control of it.
10. In Chapter 9, we discuss various issues concerning contracts for the sale of goods, including sale of goods forming part of a bulk, right of partial rejection, the market overt rule, remedies for delivery of wrong quantity, acceptance of goods and a reasonable opportunity of comparing the bulk with the sample. The relevant provisions in other jurisdictions on these matters prompt the discussion.
11. We would like to point out that the recommendations in this Paper are included to facilitate discussions. We welcome views, comments and suggestions on any issues discussed in this Paper.
3
Chapter 1
Existing statutory provisions
regulating implied terms in
contracts for the sale of goods
and for the supply of goods,
and the need for further legislation
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Overview
1.1 In this chapter, we discuss the need for further legislation on implied terms for supply of goods (other than sale). We first examine the existing statutory provisions regulating the implied terms in contracts for the sale of goods and then discuss the reasons for further legislation on implied terms for supply of goods (other than sale).
1.2 We recommend putting the implied terms for supply of goods (other than sale) into a statutory form – Recommendation 1.
Existing statutory provisions regulating implied terms in contracts for the sale of goods and contracts for the supply of goods
1.3 There is no comprehensive code regulating commercial transactions in Hong Kong. The Sale of Goods Ordinance (Cap 26) regulates only sale of goods but not other kinds of the supply of goods. On the other hand, the Control of Exemption Clauses Ordinance (Cap 71) controls exemption clauses in both contracts for the sale of goods and contracts for the supply of goods (other than sale).
The Sale of Goods Ordinance (Cap 26)
1.4 In Hong Kong, contracts for the sale of goods are mainly governed by Cap 26. Cap 26 is based on the Sale of Goods Act 1893 of England & Wales which is a statement of the principles derived from decided cases relating to sales of goods at that time. Cap 26 has been updated from time to time following changes to the law in England. Cap 26 was last amended in 1994 when the proposals of the Law Reform Commission in its report on Sale of Goods and Supply of Services were implemented.[4]
1.5 Under Cap 26, a number of terms are implied in contracts for the sale of goods. These implied terms are classified either as conditions or warranties. Which category a particular term falls into will determine the nature of the remedy available for its breach.[5] The terms implied by Cap26 in contracts for the sale of goods are undertaking as to title, etc, correspondence with description and sample, and undertakings as to quality and fitness.