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Exclusion of Liability in Hong Kong


Aug 19, 2015
Under Hong Kong law, parties are generally free to exclude and limit their liability under a contract subject to the protection to consumers and contracting parties under the Control of Exemption Clauses Ordinance. Under this statute, an exclusion clause may be unenforceable if it is regarded as “unreasonable”.

In a recent decision, the Hong Kong Courts examined the reasonableness of exclusion clauses in a jewellery auction.

In Lee Yuk Shing v Dianoor International Ltd [2015] HKEC 1294, the auctioneer sold some “rough diamond stones” to a buyer. The stones turned out to be fake. The buyer then sued the seller to recover the purchase price paid for the stones.

The seller, who was a liquidator, relied on a number of exclusion clauses in the Notice to Bidders and Conditions of Sale (“Conditions”). In particular, it stated that all goods are sold “as is, where is, with all faults”, buyers should rely on the description at its own risk, and representation as to genuineness of the goods were only a statement of opinion and it excludes liability for incorrectness of such statements.


“as is, where is, with all faults”

The Court held that the term “as is, where is, with all faults” meant that the goods were sold in their present state including any defects whether apparent or not. This excluded any implied warranty as to quality such as brightness, colour or weight, but did not exclude an implied warranty as to the fundamental nature of the subject matter of the sale, namely that the stones were rough diamond stones.


“description”

While the word “description” may refer to description of both quality and nature in dictionary, clear language is needed in a contract to exclude liability for mis-description as to the fundamental nature of goods. The more serious the consequence, the more explicit the notice must be given. The Court found that, in this case, the term was not sufficient to exclude liability as to mis-description of the stones as “rough diamond stones”.

Although the Court acknowledged that it is possible to exclude liability for mis-description as to nature of goods, it would wholly undermine a jewellery auction if what was described as “rough diamond stones” could be fake.


“genuineness”

Clause 11(a) of the Conditions expressly stated that representation as to genuineness of the goods was only a statement of opinion and excluded liability for incorrectness of such statements. It would exclude liability for mis-description of “rough diamond stones” if this clause was upheld.

The Court pointed out that, as the auction was conducted in English, the buyer did not fully understand the Conditions, and he had not been fully alerted to this particular clause whether in English or in Chinese. Also the Conditions were printed in font size of between 4.5 and 5.0 which the Court considered to be barely readable. The Court concluded that in light of all the circumstances this did not meet the requirement of reasonableness.

Conclusion
Even in cases where liquidators naturally wish to minimise their potential liability in the course of a liquidation, the statutory limitations apply in determining how far this liability can be excluded. Those seeking to rely on an exemption clause or limitation of liability should seek professional advice for the drafting of such clauses.
 
 
For more information on exemption clauses and other commercial matters, please contact:-

Chris Gordon | cgordon@robertsonshk.com | 2861 8413
Chris Lambert | clambert@robertsonshk.com | 2861 8417
Jennifer Wong | jwong@robertsonshk.com | 2861 8318
 
 
 
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