Commercial Law (LLAW 2012) – January 2020

The University of Hong Kong

The University of Hong Kong

Faculty of Law
Bachelor of Laws
January 2020

Commercial Law (LLAW2012)

Answering Time: 5 January 2020 (9:30 a.m.) – 7 January 2020 (9:30 a.m.)

Instructions

1. This paper has 7 pages (including this page).

2. This paper contains 2 parts and 4 questions in total (each part has 2
questions). Candidates are required to answer 1 question from each part
(i.e. 1 from Part A and 1 from Part B).
3. Each question is worth 50 marks.
4. This is an open book take-home exam.
5. Candidates may put sub-headings in their answers, and underline /
highlight certain parts of their answers.
6. The word limit for each answer is 700 words. Answers exceeding the
word limit will result in mark reduction.
7. **Candidates must use separate answer sheets / documents for Parts
A and B i.e. Part A one answer set, Part B one answer set. Failure to
do so will result in mark reduction. Candidates must indicate at the
cover page the question numbers of both the questions that they have
answered.

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The University of Hong Kong

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Commercial Law (LLAW 2012) – January 2020
The University of Hong Kong

PART A (Answer 1 question from this Part)

Question 1

Mary just inherited a huge sum from her grandmother and she was in a good
mood in making a shopping spree.

On 20 October 2019, she first bought a high-class tailor-made party dress from
Shine On Me Ltd, which sells a wide array of casual wear and office lady wear.
Mary knew the tailor personally since the tailor used to make wedding dresses
for famous movie stars but subsequently started Shine On Me Ltd. to creating
something more easy-going for the general public. Mary told the tailor
specifically that she needed the dress for a high-end charity ball and that she
wanted to look “the best” in a “sparkling dazzling” party dress. Since she was
very anxious about looking good at the ball, she drew up the design of the dress
(since she used to be a Fashion Major student and obtained First Class results)
and picked the fabric at the shop after having carefully examined the fabric.
She left the rest of the design to the tailor.

On 23 October 2019, Mary decided to purchase a flat. She went to look at the
sample flats shown for the new property “Grand Garden” in Sai Kung. She was
assured by the agent that the real property would correspond to the sample flat.
She was stunned by the sample flat, which contains very classy in-built
wardrobes and modern kitchen-ware. She also liked the base height ratio of the
flat which is exceptional for a flat in Hong Kong. She proceeded to purchase
the flat on the same day by signing the provisional sale and purchase agreement
(and completed afterwards).

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The University of Hong Kong

On 25 October 2019, Mary saw a “sand artist” performing sand animation on

the street. Sand animation is the manipulation of sand to create animation and
the sand artist would engage in a process of applying sand to a surface then
rendering images by drawing lines and features in the sand with his hands.
Mary wanted to engage the sand artist to perform sand animation exclusively at
her home for her Mother’s birthday, and to buy the final sand image created by
the sand artist fixed by some chemical in a frame. However, since she did not
want her Mother to find out that she engaged the sand artist for her birthday and
ruin the surprise, she asked Jenny, her younger sister, to approach the sand artist
without disclosing that she was engaging the sand artist for Mary. Mary told
Jenny to tell the sand artist that the sand animation was for her Mother’s
birthday and her Mother was a traditional Chinese old lady. However, Jenny
was very interested in the origin of the sand artist and where she came from
(Sweden) and therefore asked the sand artist to perform something which shows
Swedish traditions.

On 1 November 2019, Mary attended the charity ball which is held at a garden
in Repulse Bay in her party dress from Shine On Me Ltd. However, she found
out that the fabric would turn into a matte colour when it is under sun-light.
She was upset that the dress was not “bling bling” at all, which made her less
attention-drawing compared to other guests and that she did not look “the best”
at the ball. She also found out that when she waved her hands, the bit of the
dress at her underarm would be very tight which limited her hand movement.

After Mary moved into the new flat, she found out that the materials used for
the kitchen ware and the wardrobes are different from those shown in the
sample flat. Further, there is serious water-seepage by the wall on a day when
Typhoon No. 3 struck Hong Kong. The base-height ratio of the flat was also
reduced compared to the sample flat.

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The University of Hong Kong

Lastly, on the birthday of Mary’s Mother, the sand artist made a surprised
performance of sand animation. However, none of the contents of the sand
animation relates to celebration of birthday and a lot of them made references to
Swedish fairy tales which Mary’s Mother did not understand at all. The last
frame of the animation, which was frozen by the chemical and put into a frame
– was a picture of a mountain in Sweden. Further, the chemical was not strong
enough to hold the sand after the typhoon hit Hong Kong and the rainy days
also loosened up the contents thereof. The sand therefore lost cohesiveness and
the sand painting became just a frame of sand after two weeks. Mary was
furious and refused to pay the sand artist. The sand artist kept demanding
money from Jenny but Jenny said she had nothing to do with it and she was
only acting for and on behalf of Mary, unbeknown to the sand artist.

When Mary took the destroyed “sand painting” to the sand artist on the street
and asked her what happened to it, a thief grabbed the painting secretively while
the two were arguing and subsequently sold to a purchaser without notice of
defective title for HK$1,000, believing in the thief’s word that the sand in the
frame is precious property of the Qing Dynasty.

Advise Mary.

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The University of Hong Kong

Question 2

J Ltd. wants acquire 20 wood cupboards for showcasing their jewelry.

However, J Ltd. did not have enough money and therefore had to borrow money
from B Bank. In order to ensure the repayment from J Ltd., B Bank and J Ltd.
entered into the following security agreements:-

(1) An agreement titled “Fixed Charge”, under which J Ltd. agreed to charge
all of its book debts to B Bank and that all of the proceeds of the book
debts have to be stake-held in a separate bank account which is held
under the name of a third party solicitors firm.

(2) An agreement titled “Share Pledge”, under which J Ltd. agreed to pledge
all of its shares in Y Ltd. to B Bank. In the event of default, J Ltd. would
execute all transfer documents necessary for effecting the transfer of the
shares from J Ltd. to B Bank and B Bank can do whatever they wish to
do with the shares, including selling the shares at whatever price possible
and keep the windfall if it is able to sell the shares at an income in excess
of the debts.

(3) An agreement titled “Irrevocable Guarantee”, under which J Ltd. agreed

that its parent X Ltd. would guarantee the repayment of J Ltd. to B Bank,
and in the event of default, X Ltd. would be liable to pay all of the
outstanding indebtedness owed by J Ltd. to B Bank.

(4) A “floating charge” over all of J Ltd.’s remaining properties and assets,
under which J Ltd. is allowed to use and deal with these remaining

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The University of Hong Kong

properties and assets, but is not allowed to sell or dissipate them in

whatever circumstances.

J Ltd. then used the money to purchase tonnes of wood from Woody Ltd., which
specializes in producing high-quality wood. J Ltd. wanted to then pass the
wood to Edge Furniture Ltd. to produce the wardrobes. However, since J Ltd.
still owed HK$50,000 in relation to some furniture purchased last year, in the
sale and purchase agreement between J Ltd. and Woody Ltd., there is the
following clause:-

“All goods delivered by Woody Ltd., including any goods that were made
substantially using goods delivered by Woody Ltd. remain and/or shall
become its property until all debts owed to by J Ltd. to Woody Ltd.
(whether existing at the time of this contract or not) are fully repaid.”

J Ltd. found out that the wood made by Woody Ltd. had developed some black
mold thereon because of the unusually humid environment of J Ltd.’s
showroom. J Ltd. therefore refused to pay Woody Ltd.

Advise J Ltd, including but not limited to identifying and categorising th

securities interest(s), if any.

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The University of Hong Kong

PART B (Answer one question from this part)

Question 3

The law of apparent authority is unnecessarily expansive whereas the law on

ratification is unnecessarily restrictive. The development of agency law in
these two areas is unprincipled, which cannot be justified and reconciled in
terms of both doctrines and policies. Discuss

Question 4

The implied terms in the Sale of Goods Ordinance are overlapping, which
creates uncertainty. Some of the implied terms and relevant rules are difficult to
understand – for example, that the seller has to be in continuous possession of
the goods for the seller in possession exception. Further, the rules on passing of
property and risks in the Sale of Goods Ordinance are arbitrary. They should
be reformed. Discuss.

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