s16 and s17 SOGO

Monday 25 September 2023

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 Learning Outcomes
• s16 SOGO (Merchantable Quality)
• s17 SOGO (Sale by Sample)

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 General Background
• Today’s lecture is about the important implied conditions concerning
quality.
• And these are the default position in a sale of goods contract, in
relation to the quality of goods that you are contractually entitled to
have.
• And these rules way back 1890s – what they really did was to codify
the common law rules on contracts concerning the sale of goods by
small businesses.
• This piece of legislation has got to cover all things sold. So, the
provision is very broad and general.

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 s16 DUTY TO SUPPLY GOODS OF THE RIGHT
QUALITY (I)
• Let’s start off with some fundamentals – so again, remember the
thing about liability.
• The fact that liability is STRICT.
• It doesn’t matter that the seller is in no way to blame.
• The classic case of Frost v Alyesbury Dairy Co [1905] where this dairy
had in 1900 the state-of-the-art production.
• They couldn’t have improved on the way that they processed their
milk for consumption by the public. They couldn’t do anymore.
• Despite that, some of the milk sold contained typhoid germs and they
were held liable.
• S is liable even though in way to blame. 4
s16 DUTY TO SUPPLY GOODS OF THE RIGHT
QUALITY (II)
“the duty to supply satisfactory goods under Section 16(2) is strict
and .. it is no defence that all possible care was taken nor that the
seller relied on an undertaking given by his own supplier” TECHNIC
STAR UNIVERSAL v TINY LOVE [2021] HKCFI 2284
• Applies to all goods supplied not just goods sold WILSON v RICKETT
COCKERELL[1954] 1 All ER 868 (coalite + detonator!)
• Goods includes instructions/warnings WORMELL v RHM
AGRICULTURE [1987] 3 All ER 75 (weed killer)

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 s16 DUTY TO SUPPLY GOODS OF THE RIGHT
QUALITY (III)
• S must sell in the course of a business – wide interpretation is given to
this phrase, as long as the seller is in business this requirement is
satisfied –no need for S to regularly sell this particular type of goods
STEVENSON v ROGERS[1999] 1 All ER 613. N.B. Buyer’s status is
irrelevant.
• Seller in the fishing business (captured and sold fish)
• They had an old fishing boat for sale and they sold it.
• Boat was not of merchantable quality.
• And it was held that that sale was covered by the equivalent of s16.
• The fact there was no selling of fish – that did not matter.
• They were a business and they were selling goods.
• Simply, are you a business? Are you selling goods? s16 would operate. 6
 Contributory Negligence (I)
• Unlike the UK, HK has taken the view that damages cannot be
reduced on the grounds of contributory negligence.
• So, damages cannot be reduced on that ground.
• Common scenario S supplies unsafe goods to B ,B discovers the goods
are unsafe but continues to use them, and as a result serious damage
occurs to B’s property or B is injured.
• It happens very often - you buy goods. And discover they are unsafe.
You continue to use them and then the inevitable happens – the
unsafe goods cause damage to you, your premises or a third party.
• How does a court deal with that situation?
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 Contributory Negligence (II)
• How does a court deal with that situation?
• In Lambert v Lewis, you had the case about the buyer and he was
using an unsafe coupling to attach a trailer to his Land Rover.
• And he knew that this coupling could come off at any time. And one
day it did.
• And it killed some people in an oncoming car.
• Choice? - breach of s16 B gets full damages or it is all B’s fault and B
gets nothing! LAMBERT V LEWIS [1981]1 All ER 1185

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 Contributory Negligence (III)
• Heil v Hedges
• This case was about buying pork chops.
• They weren’t cook them at the right temperature and buyer became
very ill with serious food poisoning.
• And her claim under s16 failed because the court said there was
nothing wrong with the pork chops in the first place – it was all the
buyer’s own fault.
• no breach if B fails to do something obvious to the goods before use.
• 100% B’s fault.

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 Contributory Negligence (IV)
• In HK, there is one of 2 extremes:
• (1) defective quality, unsafe goods, breach ofs16 – buyer gets full damages; or
• (2) 100% all the buyer’s fault. And the buyer gets nothing.
• There is no in-between situation. It gives a court a hard choice.
• This combination: Liability is strict, contributory negligence does not apply.
Gives the court very hard choices.
• In addition, the consideration that the buyer being completely to blame is a
basic principle of the law of contract.
• Combination of fact liability under s16 is strict and also the fact that in a claim
in contract contributory negligence is not relevant as a partial defence in
Hong Kong INTERNATIONAL TRADING v LAI KAM MAN [2004] 2 HKLRD 937
• This can give a hard choice to judges.
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 s16(2) IMPLIED CONDITION OF
MECHANTABLE QUALITY (I)
• We use the term “merchantable quality” in HK.
• UK, Singapore – use the term “satisfactory quality”
• 2 exclusions when s16(2) does not apply.
• First:
• s16(2)(a) doesn’t apply “as regards defects SPECIFICALLY drawn to buyer’s
attention before the contract is made.”
• That is, if you highlight a particular problem with the goods, before the buyer
buys it. The buyer is aware of this particular problem. Then obviously, she
CANNOT complain.
• To get off the hook S must be precise, a general statement is not enough.
• Wong Ng Kai case, a woman is buying a pedigree dog.
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 s16(2) IMPLIED CONDITION OF
MECHANTABLE QUALITY (II)
• Second:
• S 16(2)(b) ‘if the buyer examines the goods before the contract is
made, as regards defects which that examination ought to reveal’
• There is no obligation to examine goods but if you do, court will focus
on examination actually made – should it have revealed the defect?
GLOBAL ASIA LTD v LUCKY FOREST LTD[2001] HKCFI 1127
• Note court will focus on actual examination – in contracts sometimes
it says “buyer has examined the goods and are satisfied goods are in
good condition” – but court will ask did buyer examine or not?

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 Definition of Merchantable Quality (I)
• The definition of merchantable quality in SOGO has to be very
general as it must apply to every type of goods sold from pencils to
planes, new and second hand and taking into account any description
attached to the goods!

• Whether goods are of merchantable quality is therefore a highly

factual question but some guidance has been provided by s2(5)
SOGO.

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 Definition of Merchantable Quality (II)
s2(5) Goods ..are of merchantable quality ..if they are
(a) as fit for the purpose or purposes for which goods of that kind are
commonly bought
(b) of such standard of appearance and finish
( c ) as free from defects (including minor defects)
(d) as safe
(e)as durable
as it is reasonable to expect having regard to any description applied
to them, the price (if relevant) and all other relevant circumstances

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 Definition of Merchantable Quality (III)
• Use of the word ‘are’, confirms common law rule that if goods are
unmerchantable there is a breach even though the defect can be
remedied later by a simple process JACKSON v ROTAX MOTORS[1910]
2 KB 937
• Judge things when goods are supplied.
• If goods are supplied, and not of merchantable quality, there is a
breach.
• Question when looking at the criteria of s2(5) SOGO and depending
on the facts, ask “would a reasonable buyer accept these goods?
Would a reasonable buyer accept goods knowing the particular fault
of the goods?”
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 Definition of Merchantable Quality (IV)
• Note that in deciding if goods are not of merchantable quality where
there are a number of defects you do not look at each defect in isolation
from the others.
• Decide if the goods are merchantable quality after weighing up the sum
total of the defects.
• Each defect by itself might not be enough but when all are added
together the goods are not of merchantable quality.
• “Now, when there is such a congeries of defects as to destroy the workable
character of the machine, I think this amounts to a total breach of
contract, and that each defect cannot be taken by itself separately…...”
per Dunedin LJ in POLLOCK v MACRAE 1922 S.C (H.L.) 192
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 Description
• The description attached to the good clearly affects the quality a
reasonable buyer is entitled to expect.
• A higher standard would be expected in the case of goods described
as “new” as compared to “second hand” BARLETT v SIDNEY
MARCUS[1965] 2 All ER 753 or “demonstration model”.
• If a car is described as “fit for scrap” you would not expect it to be
roadworthy!
• If food is described as babyfood it clearly is not of merchantable
quality if not suitable for babies even though fine for adults!

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 Fitness for Common Purpose
• If goods have only one common purpose and are not fit for that
purpose likely to be a breach of merchantable quality GRANT V
AUSTRALIAN KNITTING MILLS [1935] All ER Rep 209.
• If goods have more than one common purpose under old law
before s2(5)(a) amendment in England, it was enough if they were
fit for one of those purposes even though not fit for the common
use the buyer bought the goods for–very pro-seller. ASWAN
ENGINEERING v LUPDINE[1987] All ER 135 .
• The HK amendment has not changed this “fit for the purpose or
purposes for which goods of that kind are commonly bought” unlike
the English amendment which states “fitness for all the purposes for
which goods of the kind in question are commonly supplied”.
• HK follows approach in Aswan Engineering v Lupdine.
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Appearance / Finish / Freedom From Minor
Defects
• This recognises that buyers, especially consumers, often purchase
goods for aesthetic reasons not just for functional ones.
• If you buy a brand-new Rolls Royce you want it to look good as well as
having a reliable engine to get you from A to B.
• Therefore, if it is supplied with a noticeable scratch on the paintwork
you should be able to reject it. ROGERS V PARISH [1987] 2 All ER 232

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 Price
• The higher the price the higher the quality the buyer is reasonably
entitled to expect ROGERS v PARISH; BERNSTEIN v PAMSON
MOTORS[1987] 2 All ER 220
• In commercial contracts a substantial difference between the contract
price and the resale price given the defect could be enough to make
goods unmerchantable BROWN v CRAIKS [1970] 1 All ER 823 .HK
CASE GRACE GARMENTS v TAJAMAHAL’S LTD [1974] HKLR 239

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 Safety / Durability
• Unsafe for use –goods likely to be unmerchantable WILLIAM
ZAMARA v THE SHUI HING CO LTD(1951) 35 HKLR 1.This includes
misleading or lack of instructions/warnings WORMELL v RHM
AGRICULTURE
• Durability –at time of supply goods must be capable of lasting in a
reasonable condition for a reasonable length of time.Different
goods will have different life expectancies.

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 s16(3) Fitness for B’s Particular Purpose
• s16(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”.
• Some overlap with s16(2). Eg. Buy underpants – not fit for one common
purpose they were bought for – breach of s16(2) and s16(3)
• s16(3) is important (and useful) when buyer points out to seller that she
wants the good for a particular purpose, and that will raise expected
standard for suppliers. 22
 s16(2) and s16(3) comparison
• “…..the function of [S16(2)] , by contrast with [S16(3)], is to establish a
general standard of quality which goods are required to reach. It is
not designed to ensure that goods are fit for a particular purpose
made known to the seller. That is the function of [S16(3)] per Clarke LJ
in JEWSON v BOYHAN[2003] EWCA Civ 1030

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 s16(3) Fitness for B’s Particular Purpose (I)
• Goods must be reasonably fit for B’s particular purpose if;
• (i) B makes known to S the particular purpose for which he wants the goods.
• In the case of one common use goods and B wants the goods for that common purpose no
need to expressly tell S, it is implied GRANT v AUSTRALIAN KNITTING MILLS. See also BSS
GROUP v MAKERS [2011] EWCA Civ 809 where the particular purpose was implied because of
the previous dealings between the parties.
• But if B wants goods for some special purpose, he must expressly inform S GRIFFITHS v
PETER CONWAY[1939]1 All ER 685 ; SLATER v FINNING [1996] 3 All ER 398 See HK case FACE
MAGAZINE MARKETING V INNOVATIVE GIFT AND PREMIUM [2103] HKEC 1014.
• However, the case law shows that to rely on s16(3) B may not have to be too precise about the
purpose thus in ASHINGTON PIGGERIES ‘animal food’ and in KENDALL v LILLICO[1968] 2 All ER
R44 ‘feeding-stuff for cattle and poultry’ was held to be sufficiently particular to allow the B to
rely on s16(3).
• But raises a question as to what amount of detail is sufficient?
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 s16(3) Fitness for B’s Particular Purpose (II)
• (ii) B must rely on S’s skill or judgment Burden is on S to prove no
reliance or it was unreasonable for B to rely his skill or judgment. In
the case of a consumer sale B relies on S’s skill/judgment in selecting
good quality stock from the manufacturer. GRANT v AUSTRALIAN
KNITTING MILLS.
• Reliance can be partial ASHINGTON PIGGERIES v CHRIS HILL.
• No reliance where B is better qualified to judge if goods are suitable
TEHERAN EUROPE v BELTON[1968] 2 All ER 886 or if S makes it clear
he cannot guarantee the goods will be suitable (fine line between S
making this clear and excluding his liability for breach of s16(3) which
could then be subject to rules on exclusion clauses CECO)
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 s16(2) and s16(3) comparison
s16(2) merchantable quality s 16(3) fit for purpose
• Only covers common use • Can cover uncommon use
of the goods • Need to rely on S’s skill or
• Examination proviso if it judgment - this can be
applies means s16(2) does partial.
not apply
 s16(2) and S16(3) comparison
• [MOTOR CAR EXAMPLE]
• Motor car has some fault with engine, not fit to drive on road.
• Engage expert before make contract.
• Expert misses a non–obvious defect before the contract is
made.
• s16(2) would apply – his/her examination could not have
revealed the defect but B runs danger that in employing an
expert he is no longer relying on S’s skill/judgment in which
case the s16(3) claim could fail.
• Expert misses an obvious defect - examination should have
revealed defect, B potentially loses claim under s16(2). But
can buyer rely on s16(3)?
 AVOIDING QUALITY DISPUTES
• To avoid arguments as to whether the goods comply with s16 & s17 it
is commonplace for the parties to have a ‘conclusive evidence’ clause
in the contract whereby the conclusion of a mutually agreed
independent inspector that the goods are in accordance with the
quality specified in the contract is binding on them, in the absence of
fraud or manifest error.
s17 Sale by Sample

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 s17 Sale by Sample (I)
• Implied condition where there is sale by sample that bulk will
correspond with the sample in quality s17(2)(a) MICROSPORT GMBG
V PACTLAND[2006] HKCU 53
• It is a sale by sample “where the there is an express/implied term to
that effect in the contract.” s17(1).
• In HOPEFUL MEAT v WAN WOO FROZEN MEAT [2013] 1416 – the
court rejected argument that there was any term in contracts 2 and 3
that goods sent under contract 1 were intended to be a sample in
connection with contracts 2 and 3.

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 s17 Sale by Sample (II)
• s17(2)(b) Implied condition B shall have a reasonable opportunity of
comparing the bulk with the sample.
• s17(2)(c) Implied condition goods shall be free from any defect,
rendering them unmerchantable, which would not be apparent on
reasonable examination of the goods GODLEY v PERRY [1960] 1 All
ER 36
• When sale by sample is being used, contract must specify such.
• Commercial contracts only. Not applicable to retail contracts.

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