The University of Hong Kong

Department of Law
Academic Year of 2022-2023

Examiner’s Report

[This report will be posted onto Moodle immediately after the release of exam results]

Course code: LLAW2012

Course title: Commercial Law
Report prepared by: Eva Tam
Date: 5 Jan 2023

Set out below are some comments/observations on common mistakes made by students in
their answers.

General comments:

1. Students generally did quite well in this final exam. Teacher is pleased to see genuine
efforts being made to apply the relevant law to facts of the problem instead of a mere
regurgitation of legal principles in the answers.

2. A common mistake made by students was failing to read the question carefully and
tailor the answer accordingly. This is especially apparent in the answers to the
questions in Part B.

Specific comments:

Question 1 in Part A:

Thunderbolt bike

This sub-question is mainly about breach of implied conditions, namely, merchantable

quality and fitness for particular purpose. Students were generally capable of doing a fine
analysis of the relevant statutory provisions and related issues. For Dan to succeed in
relation to breach of the latter implied condition, he should be arguing that the sole purpose
of a bike is for riding. The fact that the bike was to be used for rental relates more to
damages.

Most students were able to address the acceptance and rejection issues well.

Vision bikes

This sub-question relates to passing of property and risks of the bikes. Given that the exact
terms of sale were not available in the facts, this case could be either a sale of specific
goods (i.e. the exact unique numbers of the 5 bikes bought were agreed) or a sale of

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unascertained goods. The analysis of the passing of property and risks would vary
accordingly.

Some students seemed to be confused about the concept of appropriation by exhaustion –

it applies if the bulk, of which the subject goods form part, has been identified / ascertained,
but not the exact bikes. In such a case, the goods were still unascertained goods (not
specific goods) at time of contract.

Even if the risk had passed to Dan, some students missed the point about seller’s duty as
bailee in the proviso to s22 of SOGO.

Mantis bikes

Some students missed the fact that there were two back-to-back contracts here, i.e., one
between Dan and Pro Bikes Limited and the other between Pro Bikes Limited and
manufacturer. The former was likely to be an agreement to sell future goods as Dan knew
that Pro Bikes Limited had not yet owned/bought the 2 bikes at the time of entering that
agreement. There is no conflict between the concepts of future goods and specific goods
so the Mantis bikes could be both. Better students were able to address the ‘perishing’ of
goods issue under s9 of SOGO.

Notable mistakes made by some students include (a) trying to argue that Pro Bikes Limited
was acting as agent of Dan without further explanation (this was unlikely to be an agency
relationship as it required consent from both parties, and Pro Bikes Limited would not be
able to make profits without getting consent of Dan if it were acting as agent of Dan); and
(b) saying that property in the bikes had passed to Dan at the time of the first contract when
Pro Bikes Limited had not yet entered into the second agreement to acquire the bikes.

Charges

This sub-question is about nature of charges and related priority issues. The first charge
would likely be upheld as a floating charge while it is unclear as to whether the second
equitable charge was a fixed or floating charge which issue needs to be discussed, and
most students were able to address the characterisation issue and the consequential effect
on priorities.

Some students missed the “control” element which was a distinguishing feature of a fixed
charge over a floating charge, as a fixed charge could also be over a class of assets and/or
future assets so long as the assets were definite and could be specifically identified.

Most students were able to address the “constructive notice” issue relating to the negative
pledge clause in the first charge and that the second charge was created during the
“invisibility period” (i.e. the period after creation of the first charge but before it was
registered and could be seen on public register), though some students mixed up this period
with the 1-month registration period. A minority of students confused the negative pledge

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clause with non-alienation clause and/or assumed (without stating the missing fact) that
there must be an automatic crystallisation clause which might not be the case.

Question 2 in Part B:

Most students who attempted this question were able to discuss how the courts attempted
to rationalise the doctrine of undisclosed principal (e.g. on the ground of commercial
convenience), which concept was established before the contract theory had evolved the
necessity of actual mental assent. However, some students focused too much on how that
doctrine did not sit well with traditional contract law consent principle and failed to address
the second part of the question (i.e. relative fairness to third parties). The second part
essentially relates to the contraints/restrictions developed in common law under that
doctrine from the third parties’ perspective.

Better students were able to relate their answers to the question in an organised and
structured manner, and support their analysis with appropriate authorities.

Question 3 in Part B:

This question is both about agency and passing of title (including relevant exceptions to
the nemo dat rule) under SOGO. Those students who did not do well in this question either
failed to analyse the events in chronological order (as title originated from Falcon Toys
Limited so analysis should logically begin with the first sale) or was confused about the
concept of undisclosed principal (in which case neither apparent authority nor ratification
could apply; accordingly, where the agent acted outside his actual authority, the principal
would not be bound and as a result, the contract would be between the agent and the third
party). Some students did not take note of the fact that an agent could have different
functions in a single agency relationship (which was merely an issue about the agent’s
scope of authority) as in this case (i.e. Alonso would be both buying and selling the Toy
for Vera).

Some students also failed to note that the question was about advising Gordon against the
claims made by Falcon Toys Limited and Vera. This was ultimately a question of
determining who, amongst them, had real rights (or better real rights) over the Toy.
Whether Falcon Toys Limited or Vera could have had other personal claims against
Alonso (who had already absconded with the money according to the facts) and/or against
each other, or whether Gordon could have claimed against Alonso, are irrelevant.