An exemption or exclusion clause is a term in a contract which seeks to exclude or limit the liability of one of its parties. For example, it may state that a party has no liability if the contract is breached or, alternatively, seek to limit the range of remedies available to one party for a breach by the other party.
The Control of Exemption Clauses Ordinance (Cap. 71 of the Laws of Hong Kong) regulates the efficacy of exemption clauses.
Generally, this ordinance renders exemption clauses which seek to exclude liability for personal injury or death ineffective.
Other exclusion clauses, that restrict or exclude liability for damage or loss caused to the other party, are valid so long as they satisfy a test of “reasonableness”. Guidance on the type of clause that will be considered “reasonable” is provided in Schedule 2 of the Control of Exemption Clauses Ordinance.
In accordance with Schedule 2 of the Control of Exemption Clauses Ordinance, whether a clause is considered reasonable will depend on a number of factors including:
- The strength of the bargaining positions of the parties relative to each other;
- Whether the customer received a benefit in exchange for agreeing to the particular term;
- Whether the customer was aware of or ought reasonably to have been aware of the existence and extent of the term;
- If a term excludes liability should a specified condition not be fulfilled, whether it was reasonable at the time of entering into the contract to expect compliance with that condition;
- Whether the goods were manufactured, adapted or processed to the special order of the customer;
For more details regarding the reasonableness test, please refer to Schedule 2 of the Control of Exemption Clause Ordinance (Cap.72 of the Laws of Hong Kong).