WONG NG KAI FUNG, PATSY v. YAU LAI CHU t/a NEW-DATE PET TRIMMING SALON

HCSA1/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 1 OF 2005

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J U D G M E N T

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1.  This is the claimant’s appeal against the decisions of the Adjudicator of the Small Claims Tribunal made on: (i) 19 November 2004, dismissing her claim; and (ii) 23 December 2004, refusing her application for review of the decision to dismiss her claim.  Leave to appeal was granted on 23 March 2005.

Background facts

2.  The defendant operates a pet shop at Homantin, Kowloon.

3.  On 22 February 2004, the claimant purchased a three months old Schnauzer dog from the defendant at the price of HK$8,000.  On the following night, the claimant observed the dog to be coughing.  It was taken to see a veterinarian on 24 February 2004 and was suspected to be suffering from kennel cough or canine distemper.  The dog was subsequently seen and treated by two other veterinarians.  It was diagnosed to be infected with distemper virus, from which it died on 15 March 2004. 

4.  Distemper is a contagious and serious disease that generally manifests 7 to 10 days after contracting the virus and can cause death.

5.  The claimant instituted a claim against the defendant in the Small Claims Tribunal on 1 April 2004, claiming for the purchase price of the dog together with the veterinary expenses of HK$17,804 as damages.

The claimant’s and the defendant’s case

6.  The claimant’s case is that before the purchase, the shop manager, Mr Gary Som, had represented to her that the dog had two vaccinations against distemper and was free from distemper.  The claimant further claims that the defendant was in breach of an implied condition that the dog was of merchantable quality, relying on section 16(2) of the Sale of Goods Ordinance.

7.  The defendant denies making any representation that the dog was free from distemper.   The defendant’s case is that the claimant only asked whether the dog was of good health, but had never asked about distemper.  In reply, Mr Som told her she had two options.  Firstly, she could opt to take the dog for an examination before making the purchase.   Secondly, she could have the dog examined by her veterinarian within 24 hours from the purchase, and if the dog had a problem, she could exchange for another dog.   In the end, the claimant opted to purchase the dog without having it examined by a veterinarian.     

8.  The defendant relied on the invoice for sale, which contained the following provision:

“如客人在本店購買寵物犬貓後，請於24小時内自行帶同犬貓到香港政府認可之任何獸醫作健康檢查，如健康有問題，必須將寵物即時交回本店，客人可換取同等價值之犬貓，鑒於現行法例下，客人所購買之犬貓寵物，純屬個人投資風險，本店並無保險賠償責任，客人購買之犬貓，健康檢查合格後，如日後發生任何潛在疾病或有關犬貓之醫療費用，本店恕不負責。(另犬貓出售後，並無現金退回之承諾)”

9.  The claimant had signed on the invoice, acknowledging her understanding and agreement to its contents.  The invoice also recorded the claimant’s option of making the purchase before taking the dog to a veterinarian for health examination.   A tick was put in the box against these words:  客人購買寵物犬貓後，客人自行帶同犬貓往獸醫作健康檢查。

10.  In respect of the provision in the invoice, the claimant’s case is that it is ineffective, relying on section 11(2) of the Control of Exemption Clauses Ordinance.

The Adjudicator’s decision

11.   The Adjudicator found as a fact that Mr Som did not represent to the claimant that the dog was free from distemper.

12.  As to section 16(2) of the Sale of Goods Ordinance, the Adjudicator found that the implied condition of merchantable quality had been excluded because the risk of possible latent disease and the costs of future veterinarian costs had been drawn to the attention of the claimant prior to the purchase.

13.  The Adjudicator was of the view that the parties had by contract agreed to the manner in which the risk of the dog having a latent health problem should be shared.  He pointed to the fact that the claimant having opted not to examine the dog before making the purchase but afterwards, had failed to comply with the terms of the option she had chosen.   In conclusion, the Adjudicator held that the claimant had no cause of action against the defendant and he dismissed her claim with costs.

The grounds of appeal

14.  The Amended Application for Leave to Appeal raised five main grounds, namely,

(1)	In order that the implied condition of merchantable quality under section 16(2)(a) of the Sale of Goods Ordinance is excluded, the buyer’s attention must have been drawn to a specific defect which is known or alleged to be in existence, and not just to the possibility of a risk that latent defects may be present or exist, which is what the defendant was found to have done.
(2)	It is irrelevant to the application of section 16(2)(a) of the Sale of Goods Ordinance that the best a pet vendor can do is to draw the attention of their customers to the possibility of latent diseases, as held by the Adjudicator.
(3)	It is also irrelevant to the application of section 16(2)(a) that the defendant did not give any warranty as to latent illnesses that might be discovered later.
(4)	The provision in the invoice had no application to the facts of the case as the claimant had not taken the dog to a veterinarian for examination within 24 hours after the purchase.
(5)	Alternatively if the provision in the invoice did apply such that the claimant was precluded from making a claim in that she did not bring the dog for an exchange within 24 hours, the provision amounts to an exemption clause, and should be rendered ineffective by reason of section 11(2) of the Control of Exemption Clauses Ordinance.

15.  Before dealing with the first two grounds, which form the core issue of this appeal, I will deal briefly with the other grounds so as to get them out of way.  The third ground stems from paragraph (3) of the Reasons for Decision on the review application.  However, it is plain that the Adjudicator was merely describing the provision in the invoice when he said the defendant did not give any warranty on latent illnesses. 

16.  As to the last two grounds of appeal, there is no dispute that the claimant, despite having opted to arrange for the dog to be examined after the purchase, did not in fact do so.  The dog was taken to see a veterinarian because the claimant observed it was coughing.  Accordingly, the part of the provision in the invoice that requires the claimant to have the dog examined by a veterinarian within 24 hours after purchase and to bring the dog back for an exchange if it was found to have health problem does not arise on the facts of the case. 

17.  In his Reasons for Decision on the review application, the Adjudicator was of the view that this part of the provision only restricted the time to have the dog examined but not the time for bring the dog back for refund.  He therefore disagreed with the claimant’s argument that this was in the nature of an exemption clause.  He further said that even if it was an exemption clause, it was not unreasonable as to be caught by section 11(2) of the Control of Exemption Clauses Ordinance.   In making these observations, the Adjudicator was merely addressing the arguments advanced by the claimant.  It is not his finding that this part of the provision in the invoice applied to the facts of the case.  Neither did he decide the case on such basis.

18.  Given that the construction and effect of this part of the provision in the invoice does not form any part of the Adjudicator’s decision, the last two grounds of appeal do not arise for determination.  Mr Wong accepts that it is not necessary to pursue these grounds.  

Is the implied condition of merchantable equality excluded?

19.  As noted above, this appeal turns on the application of section 16(2) of the Sale of Goods Ordinance.  Specifically, the issue is whether the Adjudicator was correct in holding that the implied condition of merchantable quality was excluded by reason of the fact that before the contract, the claimant’s attention had been drawn to the risk of possible latent disease and future veterinarian costs.  It is the Adjudicator’s findings that the risk was drawn to the claimant’s attention both by Mr Som and by the terms in the invoice, which the claimant had signed to acknowledge understanding and acceptance.

20.  Section 16(2) of the Sale of Goods Ordinance provides as follows:

“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition –
(a)	as regards defects specifically drawn to the buyer’s attention before the contract is made; or
(b)	…; or
(c)	…”

21.  It is common ground that domestic animals are goods for the purpose of the Sale of Goods Ordinance: Benjamin’s Sale of Goods (6^th edition) para.1-088.

22.  Mr Wong’s argument is that, as a matter of law, a general reference to the possibility or risk of the existence of a latent defect, without stating that it does exist, is insufficient when what the seller said could only be reasonably understood to mean that he himself did not know if such defect existed.  He submits that in order to exclude the implied condition as to merchantable quality, the seller must have pointed to the very defect that the buyer is complaining of, although he needed not identify the root of the defect.

23.  There is no direct authority on the point.  What Mr Wong relies upon is a passage in Goode, Commercial Law (3rd edition), p.302 on section 14(2C) of the Sale of Goods Act 1979 (the English counterpart of our section 16(2)).   After observing that there is no case law on it, Professor Goode went on to discuss what is contemplated by “specifically drawn to the buyer’s attention” as follows:

“What is meant by “specifically drawn to the buyer’s attention”? This presumably requires that the buyer shall have had pointed out to him the particular defect of which he later seeks to complain, so that it would not be enough for the seller to say, in general terms, that the goods were in rather poor condition or that they were sold subject to defects unparticularized.  But how much factual information concerning the defect must be communicated to the buyer before it can be said to have been “specifically drawn to the buyer’s attention”? Is it sufficient if the seller points to the outward manifestation of the defect, leaving it to the buyer himself to make further investigation? Or must the root of the trouble be precisely identified to the buyer? For example, is it enough to tell the buyer of a motor car that there is a malfunction of the engine without revealing that this is due to extensive corrosion? Each case depends on its facts, but the guiding principle would seem to be that it suffices to draw attention to a defect in general terms provided that the buyer is not misled as to the nature of the defect, eg by having it presented to him as arising from a relatively minor factor, X, when X is itself but a reflection of a more fundamental factor, Y.  In such a case the buyer is entitled to expect that Y will be specifically drawn to his attention.”     

(emphasis supplied)

24.  In my view, there is considerable force in Mr Wong’s submission.  This is because section 16(2)(a) talks about “defect specifically drawn to the buyer’s attention”.  Plainly, it is dealing with a certain defect as opposed to a possible risk of defect occurring in the defect.  Furthermore, in providing that “there is no such condition as regards defects specifically drawn to the buyer’s attention”, the section only excludes the application of the implied condition to the defect that had been drawn to the buyer’s attention.  A warning against or reference to a risk or possibility of some defects will not suffice.   

25.  Mr Leung argues that, as the Adjudicator had found, a pet’s health is in a constant state of flux and there is no evidence to show that the defendant knew that the dog had contracted the virus, the defendant could not have specifically drawn the claimant’s attention to distemper.  He further submits that the Adjudicator was correct in holding that the best a pet vendor can do is to draw the attention of his customers to the possibility of such latent disease. 

26.  However, for the exception under section 16(2)(a) to apply, whether the seller had done his best is immaterial.  As analysed by Mr Wong, where the defect is one that the seller could not have known at the time of the sale and therefore could not have drawn to the attention of the buyer, then either the seller or the buyer would have to bear the risk. The effect of section 16(2) is to displace the rule of caveat emptor and to place the burden of finding out and communicating the existence of the defect on the seller: Benjamin on Sale of Goods (6^th edition) at paras.11-024 and 11-025. 

27.   In holding that the implied condition as to merchantable quality had been excluded because the claimant’s attention had been drawn to the possible risk of latent disease, the Adjudicator had adopted the wrong legal test.  It follows that the appeal should be allowed.

Should the claim be remitted to the Small Claims Tribunal?

28.  Mr Wong submits that I should proceed to enter judgment for the claimant’s claim.  Mr Leung, on the other hand, says that the matter should be remitted to the Tribunal for retrial because further findings of fact need to be made before determining the claim.

29.  In this connection, it is to be noted that because of his finding that the implied undertaking as to fitness of quality was excluded, the Adjudicator had not made findings on other contentious issues, including whether the dog had already contracted the virus before the sale and/or whether the defendant was in breach of the implied undertaking as to fitness of quality. 

30.  Mr Leung has observed that depending on the findings, question may arise as to whether the risk had passed to the buyer when the dog contracted the virus.   He further points out that there will be issues on quantum if the defendant were found to be in breach of the implied condition. 

31.  In my view, the points raised by Mr Leung are not without merits.  It does not follow automatically from the fact that the sale was subject to the condition implied by section 16(2) of Sale of Goods Ordinance that the claim must succeed.  Further findings of facts are necessary in order to determine the claim.  The case should be remitted to the Small Claims Tribunal for retrial.  I do not consider it necessary to direct that the retrial should take place before another Adjudicator.  The appeal is allowed on a point of law and there is no suggestion of any impartiality or impropriety on the part of the Adjudicator.

Costs

32.  Mr Wong asks for the costs of the appeal to be paid by the defendant to the claimant.  Mr Leung submits that as the outcome of the retrial is unknown, there should be no order as to the costs of the appeal.

33.  Costs is a matter of judicial discretion.  In principle, the fact that a retrial is ordered is not by itself sufficient for departing from the usual rule of costs should follow event.  I am unable to see other reasons for not following the usual rule.  The claimant should be granted the costs of the appeal.

Conclusion

34.  The orders I make are as follows:

(1) The appeal is allowed.

(2) The costs order below is set aside.

(3) The case is remitted to the Small Claims Tribunal for retrial.

(4) The costs of the appeal is to be paid by the defendant to the claimant, to be taxed if not agreed.