July 22, 2019

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Commercial Transactions Law in Hong Kong

As a testament to Hong Kong’s past as a British colony, Hong Kong law is heavily influenced by the UK common law system. Many of the principles governing commercial transactions in Hong Kong borrow liberally from their UK counterparts.

While the commercial transactions law in Hong Kong is extensive, it is not within the scope of this article to summarize them in their entirety, this article will provide a broad overview of some basic principles applicable to the sale and acquisition of goods in a commercial setting.

Transfer of title

The sale of goods necessarily involves, whether formally or not, a transfer of title from a transferor or seller to a transferee or purchaser. The nemo dat principle establishes that a seller may not pass on to a purchaser title better than what he originally had. An exception to this rule is when the conduct of the owner of the goods being sold bars him from denying that the seller was authorized to sell the goods.

Sale of Goods

To a large extent, the sale of goods in Hong Kong is governed by the laws of contract. The Sale of Goods Ordinance aims to add an additional layer of regulation by defining a contract for sale of goods and regulating its many facets, some of which are described below.

Existing or future goods

Section 7 allows for the sale of goods that are already in the possession of the seller and goods that have yet to come into acquisition or existence.

Perishable goods

Section 8 voids a contract for the sale of goods that have perished at the time the contract is made if the seller is unaware of that fact at the time, while Section 9 voids a contract to sell goods that have perished through no fault of the seller or buyer if the risk has not yet passed to the buyer.

Implied Undertaking

Section 14 of the ordinance inserts an implied undertaking into all contracts for sale that the seller has the right to sell and the buyer has the right to buy the goods in question, and that the goods will pass encumbered to the buyer at the relevant time without any attendant disturbances or disruptions to the buyer’s enjoyment of the goods. If there are any encumbrances unknown to the purchaser, it is implied that the seller has a duty to disclose such encumbrances to the purchaser.

Quality of the goods

According to Section 15, where there is a sale based on a sample or description, there is an implied obligation on the seller to pass on goods that correspond with the sample or the description. Section 16 requires that goods be of merchantable quality. Defects must be brought to the purchaser’s attention, or else they must have been detected upon inspection where such an inspection would normally have revealed such a defect. Otherwise, the defects can cause the seller to fall foul of this provision.

Breach of contract

The ordinance sets out the actions and remedies available to parties suing for a breach of contract, including damages, specific performance and interest. It should be noted that breaching the implied terms may also give rise to an action.