Disclaimers and Limitation of Liability
Clauses that seek to limit liability (“limitation clauses”) such as disclaimers can be commonly found in contracts, receipts, notices and announcements. However, they may not be effective due to one of the following reasons:
1) The limitation clauses are not a part of the contract;
2) The limitation clauses try to limit areas governed by the Control of Exemption Clauses Ordinance (Cap. 71) (“CECO”);
3) The limitation clauses lose over implied terms under the Sales of Goods Ordinance (Cap. 26) (“SOGO”); and/or
4) The limitation clauses lose over implied terms under the Supply of Services (Implied Terms) Ordinance (Cap. 457) (“SSITO”).
The reasonableness test comes up repeatedly. According to Schedule 2 of CECO, the factors below should be considered to determine whether a limitation clause is reasonable:
- the relative bargaining power of the parties;
- whether the customer was induced to accept the limitation clause;
- whether the customer knew or reasonably ought to have known of the existence and extent of the limitation clause;
- whether it was practical to expect the customer’s compliance with the limitation clause; and
- whether the goods were made to the special order of the customer.
It is noteworthy that a limitation clause is presumed unreasonable until it is shown otherwise under s3(6) of CECO. Thus, it is not recommendable to assume that any limitation clause could restrict or exclude liability.
Some ordinance provisions also stipulate that the customer must be “dealing as a consumer”. S4 of CECO provides that a customer is presumed to be dealing as a consumer if he or she does not contract in the course of business or holds himself or herself out as doing so.
The limitation clauses are not a part of the contract.
If the limitation clauses are featured in an unsigned document, they are generally not to be regarded as a part of the contract unless:
1) notice of the limitation clauses is given before or at the time the contract was entered into (i.e. a receipt given to the customers after they paid the money is less likely to be a part of the contract),
2) a person would reasonably think that the document in which the limitation clauses are contained has contractual effect, and
3) the supplier has done everything reasonable to give notice of the limitation clauses. The more unusual the limitation clauses are, the more the supplier must do to draw the customer’s attention to the clauses.
The limitation clauses try to limit types of liabilities governed by the Control of Exemption Clauses Ordinance (Cap. 71) (“CECO”).
CECO governs liabilities such as negligence, contract and indirect evasion. The limitation clauses must follow certain requirements to be effective.
Negligence (s7 of CECO)
Limitation clauses are not effective if they attempt to exclude or restrict the supplier’s liability for death or personal injury even if the customer accepted or was aware of such a term or notice.
For liability that is not related to death or personal injury, the limitation clauses would only be effective if they are reasonable.
Contract (s8 of CECO)
If the customer is dealing as a consumer or the contract is on the standard written terms of the supplier, liability for breach of contract cannot be excluded or restricted unless it is reasonable.
Indirect evasion (s5 of CECO)
Indirect evasion refers to the fact that some limitation clauses try to exclude or restrict liability indirectly. They will nevertheless be treated as exclusion or restriction of liability. There are 3 types of indirect evasion recognized by CECO:
1) The clause imposes onerous conditions. For example, if a clause requires the customer to file a complaint within 24 hours of purchase by delivering a standard complaint form to the supplier’s business address, or else the complaint will not be entertained, is likely to be viewed as onerous and thus an attempted exclusion or restriction of the supplier’s liability.
2) The clause excludes or restricts any right or remedy in respect of the liability. For example, a clause saying no cash refund will be given under any circumstances would likely to fall under this category.
3) The clause excludes or restricts rules of evidence or procedure. For example, a clause empowering the supplier’s decision to be final and conclusive may fall under this category.
The limitation clauses lose over implied terms under the Sales of Goods Ordinance (Cap. 26) (“SOGO”).
SOGO implies several terms into all sale of goods contracts. A contract may involve the supply of both goods and services. If the proportion of services is greater than that of goods, it is less likely to be treated as a sale of goods contract. It remains as a matter of degree. Below are the implied terms under SOGO:
- Implied term as to right to sell (s14 of SOGO)
- Implied term as to description (s15 of SOGO)
- Implied term as to quality (s16 of SOGO)
- Implied term relating to sales by sample (s17 of SOGO)
S11 of CECO concerns the supplier’s liability. A supplier is presumed to have a right to sell the goods. Therefore, exclusion or restriction of liability relating to the implied term as to title is not effective.
For the implied terms relating to description, quality and sales by sample, they cannot be excluded if the customer is dealing as a consumer. They are only effective in non-consumer contracts if they are reasonable.
The limitation clauses lose over implied terms under the Supply of Services (Implied Terms) Ordinance (Cap. 457) (“SSITO”).
SSITO implies several terms into all contracts for the supply of a service. It can still be a contract for the supply of a service even if goods are transferred in the contract. Below are the implied terms under SSITO.
- Implied term as to care and skill (s5 of SSITO)
- Implied term as to time for performance (s6 of SSITO)
- Implied term as to price (s7 of SSITO)
S8 of SSITO states that if the customer is dealing as a consumer, exclusion or restriction of liability relating to the implied terms is not effective. They are only effective in non-consumer contracts if they are r