1.

What are exclusion clauses

What are exclusion clauses
- Exclusions clauses: exclude all the liability (only a sub piece of the category)
- Exemption clause: in practice, more , limit the liability

Ways to escape liability:

- in contract
- in tort – occupy liability (obligations you incurred without intention; imposed
by the legal system)
 suffer a injury for the defects of the premises
 notice: HKU not liable for any damages caused to the person
Problems of exclusion clauses:
 Scope
 onerous character (imposed a burden on the innocent party out of
proportion)
 bargaining power (e.g., consumers)

When control
- impose the term on the other party ( especially when the weak party is a consumer)

Incorporation
- apply to any term of a contract
- implied term – no question of the incorporation
- incorporation may arise as to an express term

2. Incorporation of the EX into contract

Incorporation: in general
- Applies to terms in general, not only exclusion clauses
- Why is incorporation an issue?
 ensures that contract really reflects parties’ intention
 prevents unequal power of parties adversely to affect one of them
- if not a term, still could be a representation

Methods of incorporation
- by signature
- by notice
- by consistent course of dealing or custom

2.1 signature
General rule:
- The general rule is that a person is bound by the contents of a contractual
document he has signed whether or not he reads or understands it, and even if
he does not understand the language in which the contract is expressed((Parker
 v South Eastern Railway Co (1876), The Luna (1919))

Reflects importance of signature:

• bound despite not understanding language of contract
• Certainty, efficiency, party autonomy (?)

Example—L’Estrange v Graucob [1934] 2 KB 394:

L’Estrange v Graucob [1934] 2 KB 394
Facts - E bought an automatic cigarette vending machine from G which
stopped working after a few days.
- G denied E’s claim for breach of an implied term as to fitness for
purpose because E signed an order form which excluded liability
for all implied and express terms and statements.
- the exemption clause was in ‘regrettably small print’, printed
on brown paper and in an unexpected place,
Held E was bound by her signature
Ratios The signed clause was binding even though clause was in ‘regrettably
small print’, printed on brown paper and in an unexpected place,

Exceptions to incorporation by signature:

- non est factum
- Misrepresentation
- other vitiating factors—duress, undue influence, mistake, etc.
- non-contractual character of signed document (Grogan v Robin Meredith Plant
Hire [1996] CLC 1127)
Grogan v Robin Meredith Plant Hire [1996] CLC 1127
Facts - an oral contract was made for the hire of machinery:
- an‘time sheets’ was signed after the contract commenced
- D argued that the time sheets could incorporate the additional terms
contained therein.
Held Auld LJ
- ‘too mechanistic’ to treat a signature as invariably binding the signer to
its contents irrespective of its nature and the parties’ understanding of
its p
- A signature will not bind if the document is only administrative in the
sense of merely allowing the parties to implement their prior
agreement.

2.2 Consistent course of dealing

Context
- In the absence of signature or adequate notice, a term in a printed document
may be incorporated by a consistent course of previous dealing between the
parties or by the custom of the relevant trade
Main question—what amounts to “consistent” course of dealing?
- Consistent enough – justify the incorporation of the clauses(without signature)
- Hypothetical scenarios
 garage getting the car services
 exemption in a separate document – incorporation into the contract

Examples:
- McCutcheon v David MacBrayne [1964] 1 WLR 125—parties had contracted 4
times before but no signature on this occasion
 Leading judgement:
 restrict requirement of course of dealing
 actual knowledge requirement if you don’t know the exemption
clauses, it should no be incorporated into the contract (so many
variable situations )
- Henry Kendall v William Lillico [1969] 2 AC 31
 Facts: oral contract but parties had contracted more than 100 times(nearly
once a week) over 3 years
 Held
 Even you don’t know, you will be bound by exemption clauses – the
good law(overrule the actual knowledge requirement)
- Hollier v Rambler Motors [1972] 2 QB 71— telephone contract (no writing),
contracted 3/4 times over 5 years

CUSTOM

Implication of the term vs. imply the term

- Concerns the particular contract in issues
- Imply the term: all the contracts should imply that term in that particular area at the
particular time

Similar to consistent course of dealing

- Example:
- British Crane Hire Corp v Ipswich Plant Hire [1975]
 QB 303—parties contracted only twice previously but were of equal
bargaining power and terms relied on were in use “in the trade”
 Held
 Known in the particular area when the damages happening
 Of equal bargaining power - B2B
 The case may be different if in a B2C scenarios
- custom as a way to overcome lack of “consistent” course of dealing?
 Fundamental ideas are similar -hand in hand
- Customs
 Foreseeable liability as a presupposition
 - different scope (compare to terms implied in fact and terms implied in law)
2.3 Notice

General rule
- Context: a document containing terms may have simply been
 delivered by one party to the other,
 displayed in a notice,
 or incorporated by reference
- Rule: The proffering party seeking to rely on the terms must show that he has
given the other party adequate notice of them
- Rationale: notice serves to warn the other party what he is letting himself in for
and gives him an opportunity to renegotiate or withdraw.

Requirement of the notice:

- given at or before contract formation;
- in a document intended to have contractual effect
- is notice reasonable?

(1) Timing—at or before contract is formed (conclusion of the contract)

- Rationale: Notice given thereafter is not binding as an impermissible
unilateral variation of the contract after formation
Olley v Marlborough Court [1949] 1 KB 532—exclusion clause in hotel room
Facts - O registered and paid at the reception of M’s hotel. When he went up
to his room, he then saw the notice exempting M from liability for lost
or stolen articles.
- When O’s property was stolen because the negligence of M’s staff
allowed a thief to get into O’s room
Held - No incorporated
- Notice of the exemption came too late
Thornton v Shoe Lane Parking [1971] 2 QB 163—exclusion clause on parking ticket
FACTS - T drove his car into S’s multistorey car park, put money into an
automatic machine,
- and was issued with a ticket stated to be ‘subject to the conditions of
issue as displayed on the premises’: these excluded liability for
damage and for personal injury.
- T was injured partly due to S’s negligence,
Held - The notice inside the premises and the notice on the ticket were held
to have come too late.
- S made the offer by holding out the machine as ready to receive the
money; the customer accepted when he inserts the money: from that
point the customer is ‘committed beyond recall’.
(2) Nature of document—contractual or mere receipt?
- Rationale: If a party does not, and cannot reason ably be expected to, know that
the document he is given contains contractual terms, he is not bound by its
contents
Chapelton v Barry Urban District Council [1940] 1 KB 532—exclusion clause on ticket
issued upon payment
Facts - B’s sign indicated the hire charges for deckchairs. C took one and
got a ticket from the attendant which he put in his pocket unread.
- C fell through the defective deckchair and sustained personal injury,
the
Held - The court prevented B from relying on the exclusion clause printed
on the back of the ticket
- because it was contained in a ‘mere receipt’, which could not
reasonably be expected to contain contractual terms.
- Exception: commercial or consumer practices may indicate the contractual
nature of the document in question

Alexander v Railway Executive [1865] 6 B & S 340—relevance of commercial practices

Facts - P deposited a large amount of baggage at a railway station,
- He was issued with tickets relating to the deposit after paying the
due charges
- D argued that he could rely on the exemption clauses which were
contained in vert small print on the cloak-room tickets and were
also contained in a large notice on the wall of the waiting room
and the parcel office
Held - The court held that these conditions formed part of the contract
- ‘most people nowadays know that railway companies have
conditions subject to which they take articles into their cloakrooms’.

(3) Reasonable notice

- Parker v South Eastern Railway [1877] 2 CPD 416
 Facts:
 Railway contract
 cloakroom receipt stating “See back” (sufficient to inform?)
 issue
 Held
 Yes
 Because there is a reference to the back of the receipt
 Fact sensitive
 Takeaways
 The document you use need to be sufficient to draw the audience’ attention
to the existence of the contract
- Thompson v London, Midland & Scottish Railway [1930] 1 KB 41—illiterate
recipient
 Held
 Sufficient – anyone who notice the document would have knew the
existence of the
 compare Geier v Kujawa, Weston and Warne Bros [1970] 1 Lloyds Rep 364
 what if party knows or should have known that recipient cannot read?
 - higher bar of the reasonableness
- Poseideon Freight v Davies Turner [1996] 2 Lloyd’s Rep 38
 reference to terms “on the back” but such page not faxed
 if you don’t request for the document, it is your problem
- Richardson, Spence & Co v Rowntree [1894] AC 217—terms obscured by stamp
 Facts
 Terms – out of sight
 Held
 Not sufficient

ONEROUS OR UNUSUAL TERMS

- Party to take further steps to draw attention to such terms
- What type of terms are onerous/unusual?
- exclusion clauses—but depends on circumstances
- other terms—examples:
 holding fee—Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd
[1989] QB 433 Lord Bingham
 Facts: photo business
 You need to pick up the photo on the certain day
 Every day passed, you should be charged with a extra amount
calculated by percentage
 The holding is much higher than the value of the contract itself
 bearing costs of keeping post office branch open—Bates v Post Office (No 3)
[2019] EWHC 606 (QB)
 focusing on the effect of the enforcing of the contract
 an onerous term should be enforced anyway

What steps to take in respect of onerous/usual terms?

red hand rule (Spurling v Bradshaw [1956] 1 WLR 461)
- you need to do whatever you can to draw the attention of the audience to impose an
unreasonable document
- placing of term—e.g., Interfoto Picture Library Ltd v Stiletto Visual Programmes
Ltd [1989] QB 433

1) identify the term (express, implication, implied)

2) breach of the term
3) anyway to escape the liability
 a) if yes, incorporation of the term
4) interpretation of the term
5) the statutory control

3. Statutory controls (CECO- control of exemption clauses O)

ONEROUS OR UNUSUAL TERMS

STATUTORY CONTROLS:CECO (CAP. 71) IN GENERAL

Control of Exemption Clauses Ordinance
- (commenced 1 December 1990)

Aim—limit avoidance of contract and tort liability

Based on Unfair Contract Terms Act 1977:

• applies to businesses and consumers
• passing of Consumer Rights Act 2015 (no such thing in HK, everything
as to the comsumer relationship should be found in CECO)

CECO’s ways to limit liability:

• invalidate some exclusion clauses
• subject others to control of reasonableness
- the reasonable control of the reasonableness test

CECO (CAP. 71)—SCOPE

To which contracts does CECO apply?
• B2B and B2C contracts
• excluded:
 exempted supply contracts (s16)
 certain specific contracts under Schedule 1—
e.g., insurance, land, employment

- Some contracts must:

- include a “consumer”—defined in s4
- be “in the course of a business”—defined in s2

Structure of CECO’s provisions on control of exclusion clauses:

- ss7–9: liability for negligence and breach of contract
- ss10–12: liability relating to contracts for the sale or supply of goods
- s3 and Schedule 2: reasonableness test
- (when you look at the statutory control , the reasonableness is the very last
thing you need to concern, and the CECO is the very first thing)

Reasonable care and skill – implied terms

7. Negligence liability
 (1) A person cannot by reference to any contract term or to a notice given to
persons generally or to particular persons exclude or restrict his liability for
death or personal injury resulting from negligence.
(2) In the case of other loss or damage, a person cannot so exclude or restrict his
liability for negligence except in so far as the term or notice satisfies the
requirement of reasonableness

- death or personal injury

 some got injured in the construction site
 generally unenforceable
- other kins of damages
 financial – economic damages
 reasonableness test
- rationale: bargaining power

Defective performance
8. Liability arising in contract
(1) This section applies as between contracting parties where one of them deals as
consumer or on the other’s written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
(a) when himself in breach of contract, exclude or restrict any liability of his in
respect of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which
was reasonably expected of him; or
(ii) in respect of the whole or any part of his contractual obligation, to render
no performance at all, except in so far as (in any of the cases mentioned above in
this subsection) the contract term satisfies the requirement of reasonableness

9. Unreasonable indemnity clauses

(1) A person dealing as consumer cannot by reference to any contract term be made to
indemnify another person (whether a party to the contract or not) in respect of liability
that may be incurred by the other for negligence or breach of contract, except in so far as
the contract term satisfies the requirement of reasonableness.
(2) This section applies whether the liability in question—
(a) is directly that of the person to be indemnified or is incurred by him
vicariously; (b) is to the person dealing as consumer or to someone else.

indemnity clauses
- Def: the party breach the contract + the innocent party compensate them
- Where it arises
- Reasonable test
- Scope > only applies to consumer (B to C)
  B to B no application

“reasonableness” test – the very last step

3. The “reasonableness” test
(1) In relation to a contract term, the requirement of reasonableness for the
purposes of this Ordinance and section 4 of the Misrepresentation Ordinance
(Cap. 284) is satisfied only if the court or arbitrator determines that the term was
a fair and reasonable one to be included having regard to the circumstances
which were, or ought reasonably to have been, known to or in the contemplation
of the parties when the contract was made.
(2) […]
(3) In relation to a notice (not being a notice having contractual effect), the
requirement of reasonableness under this Ordinance is satisfied only if the court
or arbitrator determines that it would be fair and reasonable to allow reliance
on
it, having regard to all the circumstances obtaining when the liability arose or (but
for the notice) would have arisen.

Unillectral contract – notice

Reasonable test

3. The “reasonableness” test

(1)–(3) […]
(4) In determining (under this Ordinance or the Misrepresentation Ordinance (Cap.
284)) whether a contract term or notice satisfies the requirement of reasonableness, the
court or arbitrator shall have regard in particular […] to whether (and, if so, to what
extent) the language in which the term or notice is expressed is a language understood
by the person as against whom another person seeks to rely upon the term or notice

(2) In determining for the purposes of section 11 or 12 whether a contract term satisfies
the requirement of reasonableness, the court or arbitrator shall have regard in particular
to the matters specified in Schedule 2; but this subsection does not prevent the court
or arbitrator from holding, in accordance with any rule of law, that a term which
purports to exclude or restrict any relevant liability is not a term of the contract

- 1st hurdle: determine whether was a term of contract

- 2nd hurdle : section 11 or 12
 Schedule 2 –
 Open -ended list

Schedule 2
“Guidelines” for Application of Reasonableness Test
The matters to which the court or arbitrator shall have regard in particular for the
purposes of sections 11(3) and 12(3) and 4 are any of the following which appear to be
relevant—
Note: but not limited to section 11+12
(a) the strength of the bargaining positions of the parties relative to each other,
taking into account (among other things) alternative means by which the
customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in
accepting it had an opportunity of entering into a similar contract with other
persons, but without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known of the
existence and extent of the term (having regard, among other things, to any custom
of the trade and any previous course of dealing between the parties);
(note: the more you knew, the more likely the term is considered to be reasonable
(d) where the term excludes or restricts any relevant liability if some
condition is not complied with, whether it was reasonable at the time of the
contract to expect that compliance with that condition would be practicable;
(the easier the conditions is, the more reasonable the term was_
(e) whether the goods were manufactured, processed or adapted to the special
order of the customer
(if you are doing specifically for someone, the more reasonable the exemption
clauses were)

1st step: the category of the exemption clause

- Personal injury or economic loss
- Only applies to
2nd step: reasonableness test
- Refer to the schedule 2 firstly
- Don’t limit yourself to schedul2 > use all the facts that can assist you

S.5(3)
(5) Where by reference to a contract term or notice a person seeks to restrict liability to
a specified sum of money, and the question arises (under this Ordinance or the
Misrepresentation Ordinance (Cap. 284)) whether the term or notice satisfies the
requirement of reasonableness, the court or arbitrator shall have regard in
particular (but without prejudice to subsection (2) or (4)) to—
(a) the resources which he could expect to be available to him for the purpose of
meeting the liability should it arise; and
(b) how far it was open to him to cover himself by insurance.

Limitation clauses
- S.5(3) apply to limitation clauses
- Commercial insurance
 Most of the contracts are secured by the insurance in real life > most of the
times the insurance company compensated
- If there is insurance, the limitations will be more likely regarded to be
 reasonable

Burden of proof
- s. 5 (6) It is for the person claiming that a contract term or notice satisfies the
requirement of reasonableness to prove that it does
- A repeat of the orthodox rule
 the person who brought the claims bears the burden of proof