PCLL Conversion Examination
June 2012
Examiner’s Comments
Commercial Law
The examiners in this subject were pleased to note that the standard of the scripts was generally
higher than that of the previous sets of exams we had marked. The students were able to apply
the relevant law to the facts and to analyze the problems in some detail. The best students
demonstrated excellent problem -solving skills and answered the questions with a highly
competent grasp of complex issues. Those students who failed in Commercial Law either did not
understand the question or simply recited a long list of cases without any attempt to apply the
particular case law to the facts. Some students who did badly had poor time management skills
and only had the time to discuss 2 or 3 issues rather than take an overview of the problem with
sufficient detail.
Part A
Question 1
This question was quite well answered by most candidates. This part of the syllabus does not
usually generate difficult issues. The question required an analysis of the implied conditions
sections of SOGO with particular emphasis on whether there was reliance on the expertise of the
vendor, whether there was a sale by description and a breach of that condition, and whether the
camera was merchantable. The old cases of Moore & Landauer and Arcos v Ronaasen were
also relevant in terms of the specific number of batteries ordered. Better candidates also
discussed in detail the possible remedies by way of damages, and the question of remoteness of
loss.
Question 2
The “title” question is usually more difficult and less well-answered than the implied terms
question. So it was again with this exam. The chain of title runs from Jill who at all times retains
a right to sue Pam and Nick in conversion – Pam is the thief and Nick buys from Pam but the
market overt section does not protect the purchaser who then sells in market overt, only the
buyer in market overt. Thus Jane arguably obtains a title from the sale in Temple Street – takes
bona fide and for value. Candidates then needed to discuss the mercantile agent exception to
nemo dat, if it applied whether it was sold at an undervalue, and whether Albert under LARCO
section 25 may properly demand return of an “engagement present”. The main areas of
weakness concerned mercantile agent, and the “title” of Nick.
Part B
Question 1
Part B of the Examination is harder for most candidates than Part A since many questions on
security interests are not taught adequately (if at all) in undergraduate classes. Candidates are
advised to obtain access to RM Goode, Commercial Law (4th ed MckEndrick) or a similar text
and look at the relevant sections closely. Most candidates answered the question on equitable
assignment adequately – it called for reference to the rule in Dearle v Hall and set-off as against
the assignee. The retention of title question required an analysis of the cases on that topic – this
is an area which most candidates handled well. The position of Fred raised whether or not title
had passed to him under SOGO, or whether he had only a contractual right to delivery sounding
in damages – weaker candidates did not perceive this issue which requires a discussion of Re
Wait, Re Goldcorp and the general comprehensive discussion by Neuberger J in Re Harvard
Securities. Part 1(d) required an analysis of section 15A of LARCO and the theoretical problem
of taking a security interest over one’s own indebtedness. Candidates unfamiliar with Hong
Kong specific statutory provision on this topic usually cannot answer this question adequately.
Question 2
Question 2(a) is a straightforward question quite well answered by most candidates which
required a simple discussion of the nature of a finder’s and occupier’s right to possession of a
chattel – Parker v British Airways and Flack v National Crime Authority. It also required
discussion of the potential liability of the Airport as bailee.
Question 2(b) required a discussion of the liability of a collecting banker for conversion of a
cheque if the customer has no title to it and the statutory protection provided by section 86 of the
Bills of Exchange Ordinance in the light of Marfani’s case. This question was well answered by
candidates who had a knowledge of basic banking law and badly answered by weaker candidates
who discussed bailment and a large number of irrelevant issues without adverting to the section.
Candidates should note that the Part B syllabus contains disparate areas of legal study of varying
degrees of difficulty and that the “security” question always raises sophisticated issues of title,
ownership and commercial law generally. The “possession” issue is a simpler topic involving
relativity of title and so a question on possession may well be “teamed up” with something on
banking law, or some other area of the syllabus which involves a more complex issue.
Part C
For students who answered the essay question in Part C the examiners were pleased with the
depth of analysis and ability to discuss the more difficult aspects of the topic. The examiners
would like to remind students, once again, that anyone who chooses to answer an essay question
in an exam of this sort is expected to demonstrate a solid understanding of the context, problems
and any possible law reform issues that are currently being debated. In other words, the essay
question demands a level of sophistication that may be more demanding than that required in a
problem -solving question in Commercial Law.
This Report sets out a detailed explanation of the issues rose in Part C of the Commercial Law
exam so that students can see the standard expected by the examiners.
Question 1
Students were required to address the following issues:
a) what is a guarantee and how does it differ from an indemnity?
b) What does "joint and severally " mean in this context?
Note that contracts of guarantee are not covered by the Unconscionable Contracts Ordinance but
all vitiating factors can be used to avoid a contract of guarantee or indemnity.
Presumption of undue influence?
Note also that since the famous English cases on the issue of presumption of undue influence
between husband and wife (Barclays Bank v Etridge) there is no longer a presumption of undue
influence /duress and in the case of a husband and wife business team
It would be extremely hard for the wife to avoid the contract based on undue influence. For a
bonus point the best students noted Li Sau Ying v Bank of China on this issue.
Note in particular that husband and wife are both shareholders and directors in their own
company AND she went to University. She is not a vulnerable person in any sense of the term
and she runs her own business with her husband. Therefore it is impossible to prove "undue
influence” by the husband on wife on the facts as stated.
However vitiating factors can still be used to avoid a guarantee in appropriate situations
and unwilling guarantors can still attempt to argue misrepresentation, non est factum or
duress.
Can wife claim misrepresentation by Bank Manager or duress by husband and also perhaps Bank
Manager?
Misrepresentation Ordinance section 2(b)
a statement may be actionable if it is
a) statement of fact or law
b) addressed to claimant
c) induced claimant to enter contract
Students must apply all 3 criteria to Bank Manager'
s statement
The problem is to identify whether the words
"The signing is a mere formality" are opinion or fact ?
Does Bank Manager have reasonable grounds to believe his own statement?
It could conceivably be an innocent misrepresentation if he had reasonable grounds to believe
his own statement but was wrong.
"Everything will be alright as your company is in a healthy financial state" -fact or opinion?
Could be a negligent misrepresentation of Bank Manager has not read the documents.
"The Bank has no intention of seeking to rely on the guarantee “this is his personal opinion and
of course we must query whether a Senior Loan Officer could have even the apparent authority
to make such a representation.
Did the misrepresentation induce husband and wife to enter into the contract of
guarantee? Redgrave v Hurd
Does Bank Manager owes a duty of care to husband and wife? No.
Are husband and wife acting as consumers under the Control of Exemption Clauses Ordinance?
No
was the statement made by Bank Manager unconscionable under the Unconscionable Contracts
Ordinance ("UCO")? No (contracts of guarantee are not covered by UCO as they are
Commercial documents).
Has wife any evidence that she cannot read the documents? Clearly not- as she went to
University.
If a business person chooses to conduct himself in such a way that he does not understand the
terms of the contract which he signs it is immaterial that he later complains of harshness , absent
vitiating factors that do not seem to apply here.
Bank Manager also tells husband and wife to get legal advice. Has he followed Bank's
policy?
On facts as presented both husband and wife are prima facie jointly and severally liable on
guarantee as this are a commercial contract and misrepresentation did not induce them to enter
into it.
Question 2
Students must discuss both common law and statutory protection aspects of this essay question.
Common law:
when was the clause incorporated into contract?
Was reasonable notice of clause given?
Has consumer any known disability? (If unknown irrelevant)
L'
Estrange v Graucob is still the classic case on common law and protection of consumers.
Statutory protection:
Control of Exemption Clauses Ordinance
Unconscionable Contracts Ordinance
Supply of Goods Ordinance
Supply of Services (Implied Terms) Ordinance
Misrepresentation Ordinance
Students MUST have a definition of a consumer
section 4 CECO
section 3 UCO
bonus points for definitions of a consumer under SOGO and Supply of Services legislation in
Hong Kong.
Note the CECO and UCO only apply to enforceability of exemption clauses which seek to
exclude a party'
s liability for breach of contract or negligence .By contrast if a clause seeks to
impose a particular liability on the buyer, then CECO and UCO cannot apply and consumer must
resort to common law.
Students MUST state broadly the significance of CECO section 3 on the question of
reasonableness
Note section 3(3) would it be fair and reasonable to allow reliance on the clause?
Section 3(4) the language
section 3(5) was insurance cover available?
Note the Guidelines for the Court in Schedule 2 as to bargaining power inducement and so on.
If section 7 and 8 CECO do not assist, a consumer can also use wider powers under UCO for
sale of goods and services and note effect of sections 2 and 6.