Topic Three Contract Law: Terms and Exemption Clauses

[A]

Terms of Contract (Needs consideration for both sides)

What are terms of contract?

An important statement made shortly before the contract is formed (can be a

few days before the contract is formed: Schawel v Reade [1913] 2 IR 64) or at the
time when the contract is being formed (in case there is no written contract).
Not, a statement made after the formation of the contract (there are exceptions
to both points to be learnt at pp.32-33).
The terms in a written contract.
If a party does not keep the terms of a contract, he would normally have breached
the contract and have to make remedies to the party not at fault.

Are there different types of contract terms?

Yes. 2 types: (a) Express terms
(b) Implied terms
What are express terms?

Terms expressed in the contract (in written or oral form).

Can oral terms be accepted as parts of a written contract?

Where there is a written contract, only the terms in it are contract terms and other
oral statements made shortly before the contract is formed or at the time when the
contract is formed are normally not accepted as contract terms. This is called the
parol evidence rule ( / commonly called ).
Happy Dynasty Ltd. v Wai Kee (Zens) Construction & Transportation Co. Ltd. and Dyno
Wesfarmers (HK) Ltd (third party) [1998] 1 HKLRD 309

A and B signed a written agreement in relation to a building project dispute.

One of them would like to present additional oral terms as part of the agreement.

Held: Disallowed.
Notwithstanding the above rule, if a party has signed a written contract as a result of an
oral promise made to him shortly before the contract is formed or at the time when the
contract is contract, this party can rely on it being a collateral warranty (a term in a
collateral contract) to protect his right.

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City & Westminster v Mudd [1959] Ch 129

A tenant was given an agreement which forbade him to sleep in the flat.
After he was orally promised that he would not be removed for violating this clause,
he signed the agreement.
Later, despite the promise, the landlord sought to remove him for violating this
clause.

Held: Although the tenant had breached the written tenancy agreement, the landlord was
not allowed to remove him because of the collateral warranty.
A promise has to be made clearly (JJ Savage and Sons Pty Ltd v Blakeney (1970) 44
ALJR 123 the seller said that his boat had an estimated speed of 15 miles per hour. The
court decided that this statement was not a contract term).
* Note however that where the written agreement says its is final the court would treat
the written terms only as the contract terms: Happy Dynasty Ltd. v Wai Kee (Zens)
Construction & Transportation Co. Ltd. and Dyno Wesfarmers (HK) Ltd (third party)
[1998] 1 HKLRD 309).
What are implied terms ()?

Terms neither written in the contract nor orally made but implied by law, e.g. there
are several important implied terms in sale of goods contracts as laid down by the
Sale of Goods Ordinance: The goods are of merchantable quality () (section 16)

If the seller has clearly indicated the defects to the buyer or the buyer ought to have been
aware of the defects from a reasonable inspection of the goods, this obligation does not
apply (section 16)
Factors to take into account in deciding whether an item is of merchantable quality: How
about the price? How about the safety aspects? How about the durability aspects? How
about the standard of the materials? How about the common purpose of the item? Any
defect? (section 2)

The goods are fit for their particular purpose(s) () indicated by the
buyer (section 16), and,

The goods correspond to their description and sample ( /

) (to be a contract term the description has to be a clearly made statement).

The courts allow a marginal difference with the relevant description if the difference has
insignificant impact on the buyer: Arcos Ltd v EA Ronaasen & Son [1933] AC 470

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The requirement that the goods shall correspond to the description does not apply to
unimportant parts of the relevant description: Reardon Smith Line Ltd v Hansen-Tangen
[1976] 1 WLR 989
Under the Supply of Services (Implied Terms) Ordinance, there is an implied term of
supply of services with care and skill in contracts involving supply of services.
Wong v Kwan Kin Travel Services Ltd [1995] 2 HKLR 541

A customer joined a tour in China organized by a Hong Kong travel agency.

The Hong Kong travel agency had undertaken to provide the service to its
customers in the brochure.
It arranged for contracting out the services to mainland Chinese companies.
The customer drowned during her holiday tour due to the negligence of an employee
of the sub-contractor who was responsible for providing the transport services.

Held: This was a case of supply of services. Since the service supplier (the Hong Kong
travel agency) had undertaken to provide the service to its customers under their
contract, it had to do so with reasonable skill and care. The Hong Kong travel agency
was liable for the negligence of its sub-contractor.
* If the contract mentions that the travel agency will only be responsible for arranging
contractors to provide the service to the customers, the travel agency only needs to
carefully select the contractors. The travel agency is not liable for the negligence of the
contractors: Chea v Kwan Kin Travel Services Ltd [2007] 1 HKLR 937.
Under common law principles, when certain terms are essential for the performance of
the contract (The Moorcook (1889) 14 PD 64), they can be implied in the circumstances
of the case. In Li v Xuan [2004] 1 HKLRD 754, the court mentioned that a landlord had
the duty to repair structural problems of a flat that he had let to a tenant.
What would happen when contract terms have been breached?
Under the modern approach, this would depend on: (i) the nature of the contract terms.
(ii) the consequences of the breach of contract.
(i) the nature of the contract terms
Traditionally, the courts categorize terms into conditions ( / commonly called
) and warranties ( / commonly called ). Conditions are
the more important terms (e.g. the said implied terms in relation to sale of goods and
supply of service agreements under the legislations) while warranties are the less
important terms (e.g. the number of rehearsals promised by a singer to be performed
before the concert: Bettini v Gye (1875-76) LR 1 QBD 183).
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Remedies for breach of conditions:

Damages () (money compensation covering the loss of the innocent party

due to the breach of contract a common law remedy)
Rescission () (cancellation of the contract and restoring the parties to their
respective position before the contract was formed if he can satisfy some criteria
based on fairness to be learnt in cap. 4 an equitable remedy. One example: if a
seller has breached a sale of goods contract, the buyer can demand for refund)

Remedy for breach of warranties:

Damages (only)

* A contract may state that the innocent party may rescind the contract in the event of
breach of certain terms (Union Eagle Ltd v Golden Achievement Ltd [1997] 1 HKC 173
the time for payment of the land was said to be of the essence in the contract. The
court allowed the seller to rescind the contract even though the buyer had been late for
only 10 minutes in paying the price).
(ii) the consequences of the breach of contract
Some terms are innominate terms, i.e. it is difficult to tell the importance of the term. In
such a case, following Hong Kong Fir Shipping Co. Ltd. v Kawaski Kisen Kaisha Ltd.
[1962] 2 QB 26, the approach is to be: Where the consequence of breach of contract is serious: damages + rescission
Where the consequence of breach of contract is trivial: damages (only)
Earnest Property Agency Ltd v Lim [2007] HKCU 2132 (a sale of land case):

A (vendor) engaged B (an estate agency) to sell his land. A told B that the land
should not be sold to a Kelvin Ko.
B sold the land to Kelvin Ko.

Held: The instruction was an innominate term. A could have refused to sell the land to
Kelvin Ko or increased the price. B had deprived A of the substantial benefit of the
contract. A could therefore rescind the contract (i.e. no need to pay the service fee to B).
In Okachi (Hong Kong) Co. Ltd. v Nominee (Holding) Ltd. [2005] 3 HKC 408, the court
reiterated that it has to be determined whether a term is a condition or a warranty first.
The consequences of the breach of contract will only be considered if the term is
classified as an innominate term.

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[B]

Exemption Clauses ()

What are exemption clauses?

Sometimes a contract or a document (e.g. a notice) may include an exemption clause
excluding or limiting the liability of the seller or the service provider. Exemption clauses
include 2 major types:

Excluding clauses (clauses excluding liability, e.g. we are not responsible for injuries
caused to our patrons who use our products)
Limiting clauses (clauses limiting liability, e.g. compensation for injuries caused to
our patrons who use our products shall not exceed $1,000)

Due to their unfairness especially to consumers, exemption clauses are controlled by the
common law and legislation.
How does the common law control the exemption clauses is the exemption clause a
contract term (did the innocent party know it or could he have known it)?
(a) The signature test
If a party has signed a document with an exemption clause (or any other term), in the
absence of misrepresentation () he is bound by it even though he may not
have read it or the words are small: L Estrange v F Graucob Ltd. (1934) 2 KB 395.
Curtis v Chemical Cleaning [1951] 1 KB 805 (a case decided before the implementation
of the Supply of Services (Implied Terms) Ordinance)

A customer paid for cleaning service in a laundry. The document stated that there
would be no compensation in case the customers dresses were damaged.
She was told by a staff member of the laundry that there would be no compensation in
case the beads of the dress were damaged before she signed the document (she did
not read it).
Her dress was damaged during the cleaning process and the laundry refused to
compensate her.

Held: The customer was entitled to compensation. There had been misrepresentation
made by the staff member of the laundry (i.e. its authorized agent) as to the relevant
exemption clause in the contract (it gave the impression that there would be
compensation in case the parts other than the beads in the dress were damaged) so that it
should not bind her (you will learn more about misrepresentation in topic 4 materials).
Note that to be a contract term the document containing the exemption clause cannot be
signed after the formation of the contract: Oriental Pearl South Africa Project Cc v
Bank of Taiwan [2006] HKCU 1670.

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(b) The timing test

Olley v Marlbourough Court [1949] 1 KB 352 (a case decided before the implementation
of the Supply of Services (Implied Terms) Ordinance)

The customers paid deposit at the service counter of a hotel to book a room.
They went to their room in which there was a notice saying that the hotel was not
liable to its customers if their luggage was lost or stolen due to its negligence.
Their luggage was stolen due to the negligence of the hotel staff (they failed to
prevent the key to the hotel room from being stolen).

Held: The exemption clause was ineffective in a contract law action as it was not a
contract term. It was shown to the customers after the formation of the contract
between them and the hotel (the contract was formed at the service counter).
Thornton v Shoe Lane Parking Co. Ltd. (1971) 2 QB 163 (a case decided before the
implementation of the Control of Exemption Clauses Ordinance)

A customer pressed the button of a ticket machine outside the car park and received a
ticket.
The ticket stated that the customers were subject to terms displayed in the car park.
The customer drove his car into the car park. There was a notice inside the car park
which exempted it from liability for injuries caused to its customers.
The customer was injured inside the car park.

Held: The exemption clause was ineffective in a contract law action as it was not a
contract term. The terms on the ticket were shown to the customer after the formation of
the contract between him and the car park (the contract was formed when the customer
pressed the button of the ticket machine to get the ticket).
Seapower Resources Cold Storage & Warehousing Ltd v Assure Co Ltd [2001] HKEC
1517

A storage company verbally agreed to store the customers garlic at a certain

temperature level.
The customer was then given a receipt with a clause exempting the liability of the
storage company from damage to customers goods whilst in its godown.
The garlic deteriorated as the storage company failed to store it at the agreed level.

Held: The exemption clause was ineffective in a contract law action as it was not a
contract term. It was shown to the customer after the formation of the contract between
the customer and the storage company (the contract was formed verbally).

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(c) The reasonable notice test

If the party relying on the exemption clause has done reasonable steps to draw the
attention of the innocent party to it at the time of the formation of the contract, the
latter should know it and will be bound by it (Parker v South Eastern Railway (1877) 2
CPD 416).
Thompson v London Midland and Scottish Railway Co. [1930] 1 KB 41

A passenger was given an offer of sale of a ticket by the railway staff. There was a
clause saying, for conditions, see back on the face of the ticket.
The back of the ticket mentioned that there was an exemption clause and passengers
could read its wordings in the office of the railway company.

Held: When a passenger did not object to the terms in the ticket (no matter he had read
them or not) (i.e. when he accepted the terms), a contract including the exemption clause
had been formed and he was bound by it.
Sugar v London, Midland & Scottish Railway Co. [1941] 1 All ER 172: the exemption
clause in the ticket was not effective since the words had been obliterated by a date
stamp.
Richard Spence & Co. v Rowntree [1894] AC 217: the exemption clause in the ticket was
not effective since it had been folded.
(d) The prior consistent course of dealings test
McCutcheon v David MacBrayne [1964] 1 WLR 125: A party could be regarded to
have known an exemption clause and be bound by it if he has a prior consistent
course of dealings with the party relying on it in the sense that the innocent party has
many dealings with the party relying on it and the exemption clause had been shown on
all these occasions. If this is the case the exemption clause has been implied into
existence even though it has not been shown when the contract is formed.
Hollier v Rambler Motors [1972] 2 QB 71 (3 4 dealings within 5 years between the
parties did not constitute a course of dealings)
Petrotrade Inc v Texaco Ltd. [2000] CLC 1341 (5 dealings within 13 months before
constitute a course of dealings)
* Note that an exemption clause can be made a contract term by this test notwithstanding
that it is shown to the innocent party after the formation of the contract. Also, the
innocent party cannot be bound by an exemption clause under this test if the exemption
clause has been shown in a really unreasonable manner.

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(e) What if the innocent party does not understand the language of the exemption
clause?
Thompson v London Midland and Scottish Railway Co. [1930] 1 KB 41: Under the
common law the innocent party is bound by the exemption clause in the notice so long as
the party relying on the exemption clause does not know about this. In case the party
relying on the exemption clause realizes the innocent party cannot understand the
exemption clause in the notice, the exemption clause will not bind the innocent party.
Assuming the relevant exemption clauses are contract terms, how do the relevant
legislations control the exemption clauses?
(a) Clauses exempting liability for physical injuries caused by negligence ()
Negligence means failure to meet the standard of reasonable care for others. We will
discuss the concept of negligence in topic 9. Section 7(1) of the Control of Exemption
Clauses Ordinance: these clauses are ineffective.
(b) Clauses exempting liability for breach of implied conditions in contracts
involving sale of goods
Remember the implied conditions in contracts involving sale of goods. Under section
11(2) of the Control of Exemption Clauses Ordinance, these clauses are invalid if
consumers are involved. They are, however, valid, if they are reasonable where nonconsumers are involved.
According to its section 4, consumers are those people who bought goods intended for
ordinary domestic use or made the relevant contract not in the course of a business.
R & B Custom Brokers Co. Ltd. v United Dominions Trust Ltd. [1988] 1 WLR 321

Company A bought a car from company B for its director so that to help him doing
business transactions.
The car was unfit for its purpose but company B relied on an exemption clause.

Held: Company A was a consumer as the transaction was not an integral part of its
business or its ordinary business transaction. The transaction must be either essential
to Company A or, if not, regularly done by it to make it a non-consumer. Company B
could not therefore rely on its exemption clause since it was against the Sale of Goods
Ordinance.
(c) Clauses exempting liability for breach of implied conditions in contracts
involving supply of services

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Remember the implied conditions in contracts involving supply of services. Under

section 8 of the Supply of Services (Implied Terms) Ordinance (consideration for the
services is needed for application of this law i.e. the services cannot be for free), these
clauses are invalid if consumers are involved. They are, however, valid, if they are
reasonable where non-consumers are involved.
* Note further that the implied conditions in contracts involving sale of goods and those
in contracts involving supply of service protect both consumers and non-consumers.
There is only a difference between the position of the consumers and that of the nonconsumers where there is an exemption clause which excludes the liability for breach of
the said conditions.
(d) Clauses exempting liability for breach of contract terms (in case the implied
conditions in contracts involving sale of goods or supply of services do not apply)
Section 8 of the Control of Exemption Clauses Ordinance: these clauses are valid against
non-consumers if they have negotiated with the parties relying on such clauses before
the contract formation. These clauses are also valid against consumers and those nonconsumers who have not negotiated with the parties relying on such clauses before the
contract formation if they are reasonable (i.e. cases involving standard form contracts
having exemption clauses).
St Albans City and District Council v International Computers Ltd [1997] FSR 251: a
contract concerning installation of a computer database was not regarded as a contract
involving sale of goods. Hence, any exemption clause in such a contract could only be
challenged under section 8 of the Control of Exemption Clauses Ordinance.
* Note that the above provisions of legislative control of exemption clauses as discussed
at pp.33-34 do not apply to contracts involving insurance, sale of land, sale of shares and
sale of copyright, etc.. Only common law control can be used to control the exemption
clauses in these contracts.
Type
of
the
exemption clause
Physical
injuries
caused
by
negligence

Are
consumers
involved?
(1) Yes
(2) Yes
(3) No
(4) No
Breach of implied (1) Yes
conditions
in (2) Yes
contracts involving (3) No
sale of goods or (4) No
supply of services
Breach of contracts (1) Yes
terms other than the (2) Yes
implied conditions in (3) No
contracts involving (4) No
sale of goods or

Is the exemption
clause reasonable?
(1) Yes
(2) No
(3) Yes
(4) No
(1) Yes
(2) No
(3) Yes
(4) No

Conclusion

(1) Yes
(2) No
(3) Yes
(4) No

(1) Valid
(2) Invalid
(3) Valid
(4) Valid (if negotiation before

(1) Invalid
(2) Invalid
(3) Invalid
(4) Invalid
(1) Invalid
(2) Invalid
(3) Valid
(4) Invalid

the contract formation) / invalid

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supply of services

(negotiation not taken place

before the contract formation)

(i) Factors determining the reasonableness of general exemption clauses (see section
3 and Schedule 2 of the Control of Exemption Clauses Ordinance):

Did the innocent party know the exemption clause or could he have known it?

* This is an important factor. The test of proving knowledge is more demanding to the
parties who rely on exemption clauses under the Control of Exemption Clauses
Ordinance than under the common law (the common law test on knowledge is still
relevant in deciding the validity of exemption clauses not concerning the implied
conditions in contracts involving sale of goods and supply of service).
Stag Line Ltd v Tyne Shiprepair Group Ltd. The Zinnia [1984] 2 Lloyds Rep 211: The
use of exemption clauses in very small print in a signed written contract is unreasonable.
Assuming the innocent party knew or could have known about the exemption clause, the
following factors are still to be considered in determining its reasonableness:

Is the exemption clause written in a language that the innocent party can
understand (a very important factor though not totally conclusive according to the
Ordinance)?

Does the party relying on the exemption clause have enough resources to make
the compensation? And, is he covered by any insurance?

Always Win Ltd. v Autofit Ltd (Citybase Property Management Ltd., third party) [1995]
2 HKC 48 (a case happened before the implementation of the Supply of Services
(Implied Terms) Ordinance)

Company A (a consumer) delivered its car to company B (a car repairer) for repair.
Company B was commercially powerful and it could claim insurance after making
compensation to company A.
The car was stolen due to the negligence of company B.
The relevant exemption clause was written in English and the staff member of the
company A who delivered the car to company B could not understand English
(company B did not know about this).

Held: Company A was not bound by the exemption clause.

Note that, as said earlier, in case the party relying on the exemption clause realizes the
innocent party cannot understand the exemption clause in the notice, the exemption
clause will not bind the innocent party: Thompson v London Midland and Scottish
Railway Co. [1930] 1 KB 41. In this case we do not need to rely on legislation to control
the relevant exemption clause. Note also that the language test under the legislation only
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applies to cases involving breach of the implied conditions of sale of goods or supply of
services.

Is the bargaining power of the parties equal (a very important factor) (e.g. an
ordinary businessman versus a bank which used an exemption clause the clause was
ruled invalid as the bargaining power of the parties was unequal: Oriental Pearl South
Africa Project Cc v Bank of Taiwan [2006] HKCU 1670)?

In Stag Line Ltd v Tyne Shiprepair Group Ltd. The Zinnia [1984] 2 Lloyds Rep 211,
even though an exemption clause in very small print has been used against the victim, the
clause was still ruled valid as the victim had a strong bargaining power.

Can the innocent party find alternative source of supply (about the same price in
return for more or less the same subject matter) (but comparatively an
unimportant factor: Always Win Ltd. v Autofit Ltd (Citybase Property Management
Ltd., third party) [1995] 2 HKC 48)?

Has the innocent party been induced to agree to the exemption clause?

Rees-Hough Ltd v Redland Reinforced Plastics Ltd [1985] 2 ConsLR 109

Company A bought unique pipes from company B (company A was not a consumer
since it used the pipes for industrial purpose) from time to time.
Company Bs standard form of sale contained an exemption clause on its reverse.
On one occasion, many pipes supplied by company B were defective (under the Sale
of Goods Ordinance, there is an implied condition that the goods are to be of
merchantable quality).
Factors in favour of company B include the followings: both company A and
company B had roughly equal level of resources, this was not the first dealing
(knowledge), the exemption clause could be understood by A (language), and,
company A had only received a normal discount (no inducement).
Factors in favour of company A include the followings: company A was a regular and
major buyer of the pipes of company B which was a professional pipe supplier (the
bargaining power factor), company B did not refer to the exemption clause during its
negotiations with company A (no knowledge), and, company B had insurance cover.

Held: This was a case involving a sale of goods contract. Since company A was not a
consumer, the exemption clause could be valid if it was reasonable. On balance of all the
factors, assuming company A knew it, the exemption clause was unreasonable. Company
B could not rely on it.
How do the courts interpret the exemption clauses?

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Assuming that the exemption clauses are valid, the courts would construe them strictly
to the favour of the innocent party.
Orient Overseas Container Incorporation v Regal Motion Industries Ltd & another and
Tang, t/a Inter China Trade Company (third party) [1994] 1 HKLR 282

Company As refrigerated container which contained goods were damaged by the staff
of company B in a traffic accident during its delivery.
Company Bs exemption clause stated that it was not responsible for damage to their
customers goods during the delivery.

Held: Company A could sue company B as what was damaged was its refrigerated
container rather than its goods.
Orient Technologies Ltd v A Plus Express (HK) Ltd [2004] 4 HKC 72

A (a carrier) lost the goods of B (the client a non-consumer) because As agent left
the goods unattended for about 10 minutes in open space during the course of
delivery.
As exemption clause stated that it was not liable for negligence.

Held: B could sue A for the loss of the goods since the conduct of As agent amounted to
willful neglect and not merely negligence.
[C]

Disclaimers

You will later learn in chapter 8 that a person may not have any contract with the
innocent party but he may have injured the innocent party because of his negligence.
Also, sometimes there may well be a contract between the parties but the relevant service
was done for free and the innocent party suffers a loss due to the negligent service. In
such a case there is no liability for breach any contract (as there is none) but there can be
liability for negligence (a different law).
A clause which excludes or limits liability for negligence in a case not involving a
contract is called a disclaimer ( / commonly called ). The Control of
Exemption Clauses Ordinance applies to disclaimers as well. For cases involving losses
due to negligence, since there is no contract of supply of service between the parties (as
there is no consideration involved) the disclaimer can be valid if it is reasonable: section
8.

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Control of Exemption Clauses

Not effective
in a contract
law action

If no
Is the exemption clause a
term?
Ifcontract
yes
If yes
If yes

Does it exclude liability

for physical injuries?

If yes

Not effective

If no
Does it exclude liability for breach
of implied conditions in contracts
involving sale of goods and supply
of services to consumers?

If yes

Not effective

If no

Disclaimers (clauses excluding

liability for loss caused by
negligence)

Reasonable

Clauses excluding liability for

other breaches of contract
involving consumers / nonconsumers (negotiation taken place
before the contract formation)

Reasonable

Not reasonable

Not reasonable

Not effective

Not effective
Does the clause clearly
exclude the liability of
the party relying on it?

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Suggested Questions
1.

Company A offered to sell a flat as well as a car park to Kim at $2.5 million. Kim
agreed. It was stated in the sale and purchase agreement that the car park had a
cover. Kim found out that the relevant car park did not have a cover when he
moved into the flat.
Discuss whether Kim can cancel the contract with company A and get back the
purchase price.

2.

Yui was a tourist from Japan. She visited a book shop in Wanchai. There she
took a love novel written in English to the service counter to pay for it. A poster
on the service counter had the following statement in Chinese: No refund is
allowed for any purchased item. Eric, the shop owner reminded Yui, in Chinese,
to read the statement before she paid for the novel. Yui did not understand what
Eric said and she paid for the novel.
At her hotel, Yui found that there were some missing pages in the novel. She
went back to the bookstore and asked for a refund. Eric refused.
Yui is a professional writer and has written several love novels.
Discuss the legal positions of Yui and Eric. Please indicate any additional facts
you may need to help your analysis.

Suggested Answers
Q1

The car did not have a cover - breach of contract.

Do the implied conditions in the Sale of Goods Ordinance and the Supply of Service
(Implied Terms) Ordinance apply to this case?
Can Kim cancel the contract and recover the purchase price (rescission)?
Is the term a condition, warranty or an innominate term?
Is it an important term? If yes, it would be a condition.
Assuming the term was an innominate term, was the consequence of the breach of
contract serious or trivial?
Hong Kong Fir Shipping Co. Ltd. v Kawaski Kisen Kaisha Ltd.
Would Kim pay $2.5 million for the flat if he knew the car park did not have a
cover?
Earnest Property Agency Ltd v Lim
The criteria to have rescission of the contract will be discussed in topic 4 materials

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Q2

Was the exemption clause a contract term under the common law?
The timing test
The reasonable notice test
Olley v Marlbourough Court
Yui did not understand Chinese did this fact help her under the common law?
Thompson v London Midland and Scottish Railway Co.
If the exemption clause was a contract term under the common law, is it valid under
the legislations?
Breach of contract?
Breach of implied terms under SOGO as to merchantable quality and fitness for
purpose
This term is a condition
Under section 11(2) of the Control of Exemption Clauses Ordinance, clauses
exempting liability for breach of the implied terms under SOGO are invalid if
consumers are involved. They are, however, valid, if they are reasonable where nonconsumers are involved.
Yui a consumer?
Definition in SOGO: consumers are those people who bought goods intended for
ordinary domestic use or made the relevant contract not in the course of a business.
Was transaction was an integral part of Yui business or her ordinary business
transaction? The transaction must be either essential to her or, if not, regularly done
by her to make her a non-consumer.
R & B Custom Brokers Co. Ltd. v United Dominions Trust Ltd.
The facts in this Q did not mention clearly why Yui paid for the novel.
If Yui was a consumer, the exemption clause would not be valid.
Rescission: refund
If Yui was a non-consumer, was the exemption clause reasonable?
The reasonableness factors under the Control of Exemption Clauses Ordinance
Did Yui know the exemption clause?
Did Yui understand the exemption clause?
How about their bargaining powers
The other factors are also to be considered
Probably also rescission: refund
The criteria to have rescission of the contract will be discussed in topic 4 materials

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Readings
D.K. Srivastava, cap.4 (pp.125-138 and 145-158 of the 2014 edition).
Anne Carver, caps.11-12.
Acknowledgement
The writing of this topic is based on the following materials: K. Arjunan & A. Majid, Business Law in Hong Kong (Hong Kong: LexisNexis, 2 nd ed.,
2008)
D.K. Srivastava, Contract Law, D.K. Srivastava, ed., Business Law in Hong Kong
(Hong Kong: Sweet & Maxwell Asia, 3rd ed., 2012)
Anne Carver, Hong Kong Business Law (Hong Kong: Longman, 5th ed., 2001)
Andy Chiu et al, Introduction to Hong Kong Business Law (Singapore: Prentice Hall,
2001)
Betty Ho, Hong Kong Contract Law (Hong Kong: Butterworths, 2nd ed., 1994)
Carole Chui, Law of Contract in Hong Kong (Hong Kong: Longman, 1988)
Eric Cheung, Contract Law, Albert Chen, et al, eds. General Principles of Hong Kong
Law (Hong Kong: Joint Publishing (HK) Ltd., 2nd ed., 2009)
Michael Fisher and Desmond Greenwood, Contract Law in Hong Kong (Hong Kong:
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