Week 5: Exemption Clauses

Tony’s business sells and also repairs cars in Hong Kong. He is anxious to minimise liability as much as
possible in the event of complaints about repair work or the quality of cars sold. ​He thus wants to exclude all
the implied terms that would otherwise be part of the contracts with his customers

Advise him as to the extent this will be possible in relation to ​each​ of the following customers:

(a) Bill, the owner of a driving-school. Bill has five dual-controlled cars and every two years replaces his existing
vehicles with new cars purchased from Tony. Tony also does all the repair work on Bill's vehicles.

(b) Anne, who owns a car for private use. Tony has serviced her car annually for the past two years. Anne
bought her present car from Tony three years ago and is about to purchase a replacement from him.

(c) Beta Limited, a company whose business is selling wine to online customers. It has never previously dealt
with Tony but its managing director, Bert, is interested in purchasing a vehicle from Tony on behalf of the
company. Bert intends to use the ​vehicle​ both for business and private use.

Pretext:
- Must ensure that the clause is well drafted so it would not be caught out by contra referendum
- Must be incorporated into the contract
- If onerous (i.e. if go too far to exclude liability), the clause must be highlighted to the customers

1​st​ Q: Whether nature of the liability could be excluded.

s.7 CECO​ [Business to business/consumer]
Any clause excluding liability for negligence e.g. for breach of the implied term of care and skill in a
contract involving services would be ​void​ if it ​covers death or personal injury​.
(However, for any ​property damage​, would be permitted to the extent that it is ​reasonable)​
s.8 SOSITO​ [Business to consumer]
All clauses which purport to exclude implied term of care and skill in a contract involving services are
void.​
s.8 CECO​ [Business to consumer/ on business’s written standard terms and conditions]
For breaches of contract other than failure to exercise care and skill, permitted to extent that ​reasonable

CECO: Implied conditions in s.15 description, s.16 quality and s.17 sale by sample
If buyer is a consumer, any attempt to exclude these is ​void
If buyer is NOT a consumer, exclusion is permitted to the extent that the clause is ​reasonable

2​nd​ Q: Whether S is selling in course of business - ​duh

3​rd​ Q: Whether the customer is a “consumer” for purposes of CECO​, in which case the exclusion
clause was void by default, ​or whether the customer was a business buyer​, in which case the clause
was subject to the reasonableness test.

s.4(1)(b) CECO provides that to be a customer, he must not make the contract in the “ordinary course of a
business” nor hold himself out as doing so.

Note: “ordinary course of business” has enjoyed narrow definition under case law. See ​R&B Customs
Brokers​ – there must be evidence that buying goods is an “integral part” of buyer’s business, connoting a
“degree of regularity”.
R&B​ gave the phrase a narrow meaning in order to maximise protection for buyers by making as many of
them as possible consumers and thus able to take advantage of the rule that an exclusion of S16 made the
clause void if the buyer was a consumer
Week 5: Exemption Clauses

Here, Tony is obviously selling in the course of business.

Q is whether Bill, Anne and Beta Ltd were consumers.

Bill Anne Beta Ltd

Business or Business Consumer If delivery car ->
Consumer Business
Buys dual-controlled cars
(c.f. something ordinary If Ferrari ->
consumers would Consumer
purchase) every 2 years
(connoting degree of
regularity ​R&B​)
Potential exclusion clauses in relation to:
Goods
Car purchase If reasonable X If reasonable / X
s.15, 16 SOGO
breaches
Services/ works and materials
Death or PI X X X
Property damage If reasonable X If reasonable / X
Spare parts If reasonable X If reasonable / X
i.e. works and (under common law; (under common law; (under common law;
materials not under s.15/16) not under s.15/16) not under s.15/16)
(covered by s.12
CECO)
Repair contract If reasonable X If reasonable / X
i.e. works and
materials
(implied term of
care and skill in
s.5 SOSITO)

THEREFORE Starting point: the term

excluding liability is
unreasonable.
s.3 CECO

The exemption clause

would be only be valid if
Tony establishes that the
clause is ​reasonable​ in
itself and in those
circumstances.
NOTE:
The wider the exclusion, the more difficult it is to prove that the clause is reasonable, even if the clause is
quite typical as in ​Silver Crest