PCLL Conversion Examination June 2012 Examiner s Comments Commercial Law

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1 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. 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 (4 th ed MckEndrick) or a similar text

2 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. (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. (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.

3 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.

4 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. 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

5 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.