Why do Consumer Protection Laws Exist?
A central principle in Hong Kong contract law is caveat emptor, which in Latin means “buyers beware”. This means that the courts will respect the contract between both parties and would not normally interfere on the ground that one side has more bargaining power than the other. However, in consumer sales, it is often the case that individual consumers are not on an equal footing to sellers: they rarely have any say over the terms and conditions the seller imposes. Therefore, the law has developed
safeguards that aim to redress the balance and protect consumers. In this article, we are going to look at the major provisions that afford protections to consumers: Sale of Goods Ordinance (Cap.26) (‘SOGO’) and the Control of Exemptions Clauses Ordinance (Cap.71) (‘CECO’).
Part I. Sale of Goods Ordinance
First, we will examine some of the terms that are implied into every sale of goods contract in Hong Kong by the Sale of Goods Ordinance. The phrase “implied” means that these terms will be automatically included into every sales of goods contract, whether the parties expressly agree that this is the case or not. Here, there are two things to bear in mind. First, these terms are so essential to the contract that normally a breach would give rise to the right of rescission – the buyer would be entitled to return the product and demand a full refund of the purchase price. Second, if a buyer seeks to rescind the goods, he must not have accepted the goods; in other words, once he realized the goods were defective, he should refund the goods as soon as possible and should not continue using it.
s.14 – Seller Must Have the Right to Sell Goods
It is clear that the seller must own the goods that he is selling. Therefore, s.14(1) of SOGO implies a term into every sale of goods contract that the seller has the right to sell goods at the time of sale. An obvious example of where the seller does not have the right to sell the goods is when the seller steals a car and sells it to the buyer. However, sellers who breach this provision may themselves be “innocent”: for example, a second-hand car dealer that buys a car from a thief (without knowing that it is stolen) would not get the right to sell either. This is because the thief never had good title to the car, and therefore the seller never acquired good title either.
If the seller does not actually own the goods and thus does not have the power to sell them, the buyer can rescind the contract and ask for a refund. To protect themselves, if the seller is unsure whether they have title, they seller needs to tell the buyer this. This will protect them from liability under s.14 SOGO.
s.15 – Seller Must Sell Goods Matching Description
s.15 SOGO states that where there is a sale by description, the goods must correspond to the description. Sale by description is essentially any sale when the seller, orally or through writing, describes the goods that he is selling. For example, the seller sells a car marked in “Made in the USA”, but the car was actually made in China: this is clearly a case where the goods do not match the description. When there is a breach of this implied term, the buyer will be entitled to rescind the contract and ask for a refund.
s.16(2) – Implied Condition as to merchantable quality:
If the seller is a selling as part of a business, s.16(2) implies that goods sold are of “merchantable quality”. In other words, goods must be of such a quality that you would reasonably expect to find in a store. For example, when purchasing food from a supermarket, you would not expect to find food that is mouldy and expired. If the goods sold is not of merchantable quality, the buyer can ask for a refund. In considering whether the goods are of merchantable quality, the courts will consider a number of factors:
- Are the goods fit for its purpose?
- The appearance of the goods (For example, whether it has scratches).
- Are the goods defective/ safe/ durable?
- The cost and label applied to the goods (If the goods are advertised as a premium product and sold at a high price, the expectation as to quality would be higher).
There are two exceptions to the rule in s.16(2). First, if the seller tells the buyer specifically that the goods are defected, the seller is not liable for those defects. Second, if the buyer inspects goods and should’ve discovered the defects, the seller is not liable for those defects. For example, in a second-hand car sale, if a buyer inspects the car and sees that the seats are ripped, but still chooses to buy the car at a low price, he cannot later complain that the goods are defective.
s.16(3) – Implied Condition That Goods are Fit for Purpose
People often seek the advice of sellers about what goods are suitable for their needs because they themselves lack the relevant knowledge or skills. s.16(3) is designed to cover this kind of situation – if the good bought is not fit for the purposes that have been communicated to a seller who sells in the course of business, the buyer will be entitled to rescind the contract and ask for a refund. Take the example of a buyer who is allergic to cotton t-shirts. Before he buys a shirt, he asks the seller if the shirt will cause him any allergies. The seller tells him that the shirt has no cotton and he will be fine. It ends up that the shirt has cotton and the buyer cannot wear the shirt. Here, the buyer would be entitled to return the shirt and ask for a full refund.
Part II: Exemption Clauses
An exemption clause is a clause that attempts to limit liability for breach of contract. It is commonly seen in the terms and conditions of the contract: for example, a seller might have an exemption clause stating that under no circumstances will refunds be given to the buyer. In Hong Kong, exemption clauses are governed by the Control of Exemption Clauses Ordinance, which limits the types of exemption clauses that can be given. As will be seen below, a “no refund” policy would not be valid under CECO.
For an exemption clause to be enforceable, it must first be incorporated into the contract. This means that the terms and conditions generally cannot be included “after” the contract, e.g. on the receipt. In addition, if the term is extremely unfair, it needs to be drawn to the specific attention of the buyer (for example, the term needs to be bolded or highlighted).
Secondly, CECO states that when a seller is selling to a consumer in HK, the seller cannot exclude application of the Sale of Good Ordinance. In other words, they cannot have terms stating that they would not be liable if the goods are not of merchantable quality or if they are not fit for purpose. This is why a blanket “no-refund” policy would not be enforceable when selling to consumers: the consumer has a natural right under SOGO to a refund which cannot be taken away.
However, in a business to business transaction, the court expects that the parties are more sophisticated with a relatively equal bargaining power. Therefore, parties will be allowed to exclude the protections in SOGO via an exemption clause provided that it is reasonable. Whether a term is reasonable would depend on a number of complex factors found in Schedule 4 of CECO.