Exclusion Clauses To perform its function, it must: (1) Be validly incorporated into the contract - must be drafted clearly to be effective (2) Cover the loss which has been suffered (3) Survive scrutiny under the Unfair Contract Terms Act 1977, where that Act is applicable Note: The Unfair Contract Terms Act 1977 - does not apply to all unfair terms in contracts - applies to exclusion and limitation clauses Two fundamental issues in applying the Act: (1) Jurisdictional question 是否有 exclusion clause - whether the Act applies to the term at all - truly an exclusion clause? Simply defines the obligations of the parties (2) Type of control applicable under the Act 有的话该怎么 control - reasonableness test? Interpretation - Common law control (Incorporation + Interpretation) Contra proferentem - Traditional rule - when a term is vague, the term will be construed against the drafting party 当 EC 很 vague 的时候，对它的解释对起草方不利 - Now only applies to where there is a genuine ambiguity in the clause - Lord Hoffmann: ‘almost all the old intellectual baggage of “legal” interpretation has been discarded’ (Investors Compensation Scheme) - courts want to give effect to parties’ intentions Excluding Liability in Negligence Principles (Canada Steamship) - no more than guidelines (1) If a clause ‘expressly exempts’ a party from the consequences of his or his employees’ negligence then the clause is effective. 明确是 Negligence,就有效 General words such as ‘loss however caused’ not sufficient Word ‘negligence’ or a synonym for ‘negligence’ (e.g. carelessness) must be used (2) If no express reference to negligence, must consider whether the words (ordinary meaning) used are wide enough to cover his or his employees’ negligence. 没有明确，但是包括了 negligence (3) If wide enough, must consider whether there is any alternative source of liability. 除开 negligence 是否有其他的 liability，如果有其他的就不行 The more realistic the alternative source of liability, the less likely the court will conclude that general words are effective to exclude liability for negligently inflicted loss. 越不一定是 negligence，general words 对于 exclude liability for negligence 越没用 Problem - 第二条和第三条假设 parties not intend to use general words to cover both negligently inflicted loss and non-negligently inflicted loss General words should ordinarily be effective to exclude liability in negligence (Modern Approach) - court’s primary task: to give the words their natural and ordinary meaning Fundamental Breach A party cannot rely on an exclusion or limitation clause where he has committed a fundamental breach of the contract. (Lord Denning in Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd) - a question of construction rather than a rule of law - no need under the Act - overruled by House of Lords in Photo Production Ltd v Securicor Transport Ltd The fundamental breach doctrine is now regarded as a rule of construction Very clear words necessary to exclude liability for: - (1) breach of terms that go to the root/essential character/purpose of the contract - (2) a deliberate repudiation of the contract Limitation Clauses Presumptively valid, on the basis that (Alisa Craig Fishing Co Ltd v Malvern Fishing Co Ltd) Parties are more likely to limit rather than exclude liability altogether Limitation clauses play a legitimate role in risk allocation BUT: Exclusion clauses may represent legitimate risk allocation - Photo Production v Securicor Transport - not unreasonable to exclude such liability due to the very low price given Limitation clauses may be so severe as to amount to a total exclusion (e.g. limiting liability to 1 pound) Express Undertaking EC cannot be relied on J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 Misrepresentation EC cannot be relied on Curtis v Chemical Cleaning and Dyeing Co. [1951] 1 KB 805 Statutory Control CECO Section 2: Interpretation and application Sections 7 to 12 only apply to business liability CECO Section 3: The “reasonableness test” (1) EC can only be included if fair and reasonable - what they know or what they reasonably should have known (3) Notice - only included if fair and reasonable to draw reliance on it (tort) (4) Whether satisfies the requirement of reasonableness, shall consider: - whether the language used is understood by the other party (specific to HK, multilingual) (5) Limitation clause (restrict liability to a specified sum of money), whether satisfies reasonableness: a) Resources - is the business able to cover the liability? b) How far he could cover himself by insurance (6) Burden of proof - always on the person who try to rely on the EC CECO Schedule 2: “Guidelines” for Application of Reasonableness Test a) Strength of bargaining positions of the parties - if they have equal bargaining strength - EC tends to be reasonable b) Whether the customer received an inducement to enter into the contract / had an opportunity of entering into a similar contract with other persons - if there was - not unreasonable, i.e. reasonable (since the customer refused others and chose the one with EC, they may get benefits in terms of price or quality etc.) c) Awareness of the term - knew or ought reasonably to have known of the existence - having regard to custom/previous course of dealings between them - there was - tends to be reasonable d) Whether the term is impossible to be met e) Special order? - if the goods were manufactured, processed or adapted to the special order of the customer - EC tends to be reasonable Case: The Reasonable Test George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, House of Lords Examine all the factors CECO Section 7: Negligence liability (outside of contract) - business liability (1) Death/personal injury resulting from negligence - cannot be excluded/restricted - no reasonableness test here (2) Other loss/damages, cannot exclude/restrict liability for negligence except satisfies reasonableness (3) Person’s agreement to/awareness of CE/LE for negligence not itself an indication of his voluntary acceptance of any risk. - agreement/awareness 只能作为一个 factor 对于 exclude/restrict liability of negligence，造成人身伤害或死亡是不能排除的，其他损失需 要满足 reasonableness，同意或意识到 CE/LE 不算自愿接受任何风险 CECO Section 8: Liability arising in contract - business liability (1) Apply to one of the parties as consumer or on the other’s written standard terms of business (2) The other cannot -a) Exclude/restrict any liability of his in respect of his breach; or b) Claim to be entitled -- I. To render a contractual performance substantially different from that which was reasonably expected of him II. To render no performance at all Except - the contractual term satisfies ‘reasonableness’ CECO Section 4: “Dealing as a consumer” (1) Define ‘consumer’ a) Neither makes the contract nor holds himself out as doing so b) The other party does make the contract c) Goods being purchased are ‘of a type ordinarily supplied for private use’ (2) The buyer on a sale by auction or tender - not consumer in any circumstances, despite (1) (3) Burden of proof - party who does not deal as consumer CECO Section 11: “Seller’s liability” (1) Liability arising from Section 14 of the Sale of Goods Ordinance - any breach cannot be excluded/restricted (2) Person dealing as consumer - breach of sellers’ implied undertakings cannot be excluded/restricted - section 15, 16 or 17 of the SOGO - e.g. conformity of goods with description or sample, quality or fitness for a particular purpose (3) Person not dealing as consumer - liability in (2) can be excluded/restricted when satisfies ‘reasonableness’ CECO Section 5: Varieties of exemption clause Duty defining? Phillips Products Ltd v Hyland [1987] 1 WLR 659, Court of Appeal Clause 8 was an exemption clause - should look at the effect of the term Raiffeisen Zentralbank Österreich AG v Royal Bank of Scotland Plc [2010] EWHC Whether the clause attempts to rewrite history or parts company with reality 脱离现实 CECO Section 10: “Guarantee” of consumer goods CECO Schedule 1: Scope of Sections 7,8,9 and 12 Important case: Lee Yuk Shing v Dianoor International Ltd [2015] HKEC 1294 Fundamental breach not exists anymore, but a rule mentioned here - An exclusion clause does to the root of the express purpose...clear and unambiguous language is needed Incorporation by notice Reasonableness test for EC 7,8,9,11,12,13 Which section Definition of section E.g. section 8 - section 4 - section 3
