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VII. Unreasonable exemption clauses and unfair contract terms

In order to avoid certain liabilities, or to exploit customers, some sellers or service suppliers may insert exemption clauses into their contracts or impose unfair terms. The law tries to stop traders from avoiding their responsibilities to the customers if they are injured or their property is lost or damaged because those traders failed to take proper care. The traders cannot hide behind cleverly worded clauses or a few lines of small print in a contract. They can still be liable to pay compensation.

A. Unreasonable Exemption Clauses

An exemption clause is used to avoid liability when things go wrong. Such a clause has to be "reasonable" before a trader can rely on it to avoid a claim brought against him/her by a consumer. In other words, the relevant exemption clause may have no effect if it is proved to be unreasonable .

The reasonableness test is satisfied if the judge concludes that the relevant exemption clause was fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the agreement was made ( section 3(1) of the Control of Exemption Clauses Ordinance , Cap. 71 of the laws of Hong Kong).

In considering what is "reasonable", schedule 2 of the Control of Exemption Clauses Ordinance provides the following guidelines:

  • 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; 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;
  • 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);
  • 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;
  • whether the goods were manufactured, processed or adapted to the special order of the customer.

Under normal circumstances, traders cannot escape from liability arising from the death or personal injury of a consumer if the incident happened due to the traders' negligence (for legal proceedings relating to person injury or death, please go to "Personal Injuries" under the CLIC website).

Example

If a restaurant loses or damages property that you deposited in their cloakroom, they must prove that they have already taken reasonable care of it. They cannot simply put up notices saying something like "The management does not accept any responsibility... " and then expect to escape from any sort of obligation to look after your property. You can challenge notices like that, if you think that such notices are unreasonable. It rests with the Court to make the final decision.

B. Unfair Contract Terms

The Unconscionable Contracts Ordinance ( Cap. 458 ) only applies to a contract for the sale of goods or supply of services in which one of the contracting parties is dealing as a consumer. If the Court finds out that the contract or any part thereof was unconscionable (unfair/not sensible) in circumstances relating to the contract at the time when it was made, the Court would have the jurisdiction under section 5 of the Unconscionable Contracts Ordinance to refuse to enforce the contract, or to enforce the remainder of the contract without the unconscionable part, or to limit the application of, or to revise or alter, any unconscionable part so as to avoid any unconscionable result.

When deciding whether or not the contract or any part of is unconscionable, the Court will consider the following points according to section 6 of the Unconscionable Contracts Ordinance :

  • the relative strengths of the bargaining positions of the consumer and the other party;
  • whether, as a result of conduct engaged in by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;
  • whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;
  • whether any undue (inappropriate) influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and
  • the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.

Example

A case about the sale of a hotel/resort service membership was heard in the Small Claims Tribunal in 2002 in which an "unconscionable" consumer contract was cancelled by the Tribunal. The Adjudicator (judge sitting at the said Tribunal) gave the following reasons to support the judgment:

  • the claimants (2 consumers) were in a week bargaining position as they had to sign a contract already prepared in a standard form provided by the defendant (a resort company);
  • the claimants did not have sufficient time to scrutinize the contract and could not seek independent advice before signing the contract;
  • the claimants suffered a "special disadvantage" because the defendant could not prove that the company owned the resort (or had the right to occupy it) when the contract was made;
  • the claimants could not use the resort before the membership fee ($115,500 to be paid by instalments) was paid up in full, and in addition must pay an annual management fee;
  • inappropriate influence or pressure was exerted on the claimants before the contract was made.

You can read the judgment of this case (in Chinese only) by clicking here.