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FLSB-Topic 2-Exemption Clause Notes

This document discusses exemption clauses and statutory control of exemption clauses under Hong Kong law. [1] Exemption clauses attempt to deprive the innocent party of their legal remedy. [2] They are considered fair if agreed through negotiation between parties with equal bargaining power and clear intentions. [3] However, exemption clauses in standard pre-printed contracts offered on a "take it or leave it" basis may not be fair.

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49 views

FLSB-Topic 2-Exemption Clause Notes

This document discusses exemption clauses and statutory control of exemption clauses under Hong Kong law. [1] Exemption clauses attempt to deprive the innocent party of their legal remedy. [2] They are considered fair if agreed through negotiation between parties with equal bargaining power and clear intentions. [3] However, exemption clauses in standard pre-printed contracts offered on a "take it or leave it" basis may not be fair.

Uploaded by

Alois Trancy
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FLSB-Topic 2-HK Legal system-Supplementary notes

Exemption clauses or Limitation clauses

An exemption clause attempts to deprive the innocent party of his remedy.

Exemption clauses are regarded as fair when they are the result of negotiation between
the parties, the parties have equal bargaining power and their intentions are clear

The issue of fairness e.g. When it comes to the application of the credit card, it is
usually in a standard pre-printed form and offered on the basis of “take it or leave
it” with no option to negotiate the terms.

Contra proferentem i.e. if there is any ambiguity or doubt as to the meaning of the
exemption clause, it will be construed against the party who inserted it in the contract (i.e.
the traders)

Two questions: 1) Is the clause part of the contract?


2) Does the clause cover the breach in question? 　

1. Common law control of exemption clauses

(i) Signed contracts


The signer is presumed to have read and understood the significance of all
terms and therefore the exemption clause is binding.

(ii) Unsigned contracts


In situations where entering into a contract does not require or involve signing a
contract, the terms including the exemption clause may be contained in a ticket or
notice. In this situation, the parties will be bound by the terms of the contract if:

The person seeking to rely on the clause can show that reasonable steps were
taken to give notice of the clause to the other contracting party.
 Interfoto Picture Library v. Stiletto Visual Programmes Ltd [1988]
Notice of the exemption clause must be given before or at the time the contract
was made.
Olley v. Marlborough Court Hotel Ltd [1949] (subsequent notice of the clause)
(The contract was completed at the reception desk and no subsequent notice could
affect P’s right to sue)

2. Statutory control―Control of Exemption Clauses Ordinance (CECO)

Clauses which exempt liability for negligence will be

(i) s7(1) CECO: void for personal injury and death

(ii) s7(2) CECO: reasonable test for property damage

a contract term which excludes liability for any other loss resulting from
negligence is effective only if the term is reasonable.

it is for the person who claims that a contract term satisfies the
reasonableness test to prove that it does.

the court will look into the content of the clause, the nature of the contract and all
other relevant factors. E.g. in Orient Overseas Container Incorporation v Regal Motion
Industries Ltd, it was held that the exemption clause was aimed at the goods being
transported, rather than the truck and it would be unreasonable for the Plaintiff to be
bound by the exemption clause.

Schedule 2: Guidelines for application of reasonableness test


(a) the strength of the bargaining positions of the parties
(b) whether the customer received an inducement to agree to the term (any
unfair sale tactics?)
(c) whether the customer knew or ought reasonably to have known of the
existence and extent of the term (but that overlaps with incorporation?)
(d) where the term excludes any liability if some condition is not complied
with and whether it was reasonable at the time of the contract to expect
that compliance with that condition would be practicable
(e) whether the goods were manufactured, processed or adapted to the special
order of the customer ( it should then meet the expectations of the
customer and should not lightly use exemption clause to exempt its
liability)

The above notes are based on Vanessa Stott, An introduction to Hong Kong Business
Law (Longman, 2001),

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