Is contractual clause to exclude statutory implied condition as to quality enforceable?
Introduction
In our April 2022 issue ‘You are forewarned – “fundamental,
deliberate and wilful” breaches can fall within the ambit of liability limiting
provisions!‘ and June 2022 issue ‘An
exclusion clause that excludes “loss of profit” claim does not exclude “wasted
expenditure” claim’, we have brought to you two English cases
concerning exclusion clause. Recently, in the English case of Last Bus Ltd (t/a Dublin Coach) v
Dawsongroup Bus and Coach Ltd & Anor [2022] EWHC 2971,
the English Commercial Court (the “Court”)
ruled on a contractual clause which exclude the statutory implied term as to
quality and fitness.
Background
The claimant, Last Bus Limited (“Last Bus”), a coach operator, entered
into hire purchase contracts with the 1st
defendant, Dawsongroup Bus and Coach Limited (formerly Dawson Rental Bus and
Coach Limited) (“Dawson”), a company
involved in hire purchase financing of coaches and buses, on Dawson’s terms and
conditions. The arrangements between Dawson and Last Bus were for the hire
purchase of 30 Mercedes Tourismo coaches supplied by the 2nd defendant, EvoBus (UK) Limited
(“Evobus”). Clause 5(b) of Dawson’s
terms and conditions was as follows:
“…The Company
shall have no liability for selection, inspection or any warranty about the
quality, fitness, specifications or description of the Vehicle and the Customer
agrees that all such representations, conditions and warranties whether express
or implied by law are excluded. …”
Last Bus alleged that some of the coaches
supplied to it under the hire purchase arrangements were not of satisfactory
quality, in breach of the implied term that goods are of satisfactory quality
under section 10(2) of the Supply of Goods (Implied Terms) Act 1973 (“Statutory Implied Term”). Last Bus claimed damages against EvoBus, alleging
breaches of contract and misrepresentations, and against Dawson, alleging exclusively breach of the
Statutory Implied Term.
On the other
hand, Dawson argued that clause 5(b) was effective to exclude the Statutory
Implied Term, and that Last Bus had no real prospect of resisting Dawson’s plea that
Clause 5(b) satisfied the requirement of reasonableness under section 11 of the Unfair Contract Terms Act
1977 (‘UCTA’).
Reasonableness
The requirement of reasonableness under
section 11(1) of UCTA (equivalent to section 3 of the Control of Exemption
Clauses Ordinance, Cap. 71 (“CECO”))
is that the term “shall have been a fair
and reasonable one to be included having regard to the circumstances which
were, or ought reasonably to have been, known to or in the contemplation of the
parties when the contract was made”. In determining whether a contract term
satisfies the requirement of reasonableness (in excluding the Statutory Implied
Term), regard must be had in particular to the matters specified in Schedule 2
of UCTA (equivalent to Schedule 2 of CECO):
1.
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;
2.
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 a similar term;
3.
whether the customer knew or ought reasonably to have known of the
existence and the extent of the term (having regard, among other things, to any
custom of the trade and any previous course of dealing between the parties);
4.
where the term excludes or restricts any relevant liability if some
condition was not complied with, whether it was reasonable at the time of the
contract to expect that compliance with that condition would be practicable;
and
5.
whether the goods were manufactured, processed or adapted to the special
order of the customer.
The Court’s
ruling
The Court
took into account the guidelines for the reasonableness test set out in
Schedule 2 of UCTA and noted that:
1.
Last Bus was a substantial commercial party well able to acquire the coaches,
if it so wished, without contracting on a hire purchase basis with Dawson. There
was no suggestion that Dawson took advantage of Last Bus, or that Clause 5(b) was
so unreasonable that it might have occurred to Dawson that in signing up to it,
Last Bus must have not properly understood or considered it;
2.
if Last Bus was not content with Dawson’s exclusionary terms, it was in
a position to secure such contractual assurances as to quality as EvoBus was
willing to offer, either alongside the use of hire purchase via Dawson (or
another finance house), or if necessary by buying directly; and
3.
there was a long and consistent prior course of dealing between Last Bus
and Dawson, in which Last Bus had freely agreed to, and never once raised
objection to or concern about, Clause 5(b) (or its materially equivalent
predecessors).
Having
considered the above, the Court held that Clause 5(b) satisfied the requirement of
reasonableness and there was no real prospect
of Last Bus resisting Dawson’s argument that it was fair and reasonable to
include the exclusion clause in the hire purchase contracts.
Position in Hong
Kong
Subject to the provisions under the CECO,
implied conditions may in theory be excluded by express agreement, though the
Hong Kong courts have been reluctant to construe a contract so as to permit
this to be done. Traditionally, clauses purporting expressly to exclude the
implied conditions have been narrowly construed so as to avoid, as far as
possible, defeating the fundamental right of a buyer to receive the article
bargained for. This is particularly the case when a clause operates to prevent
a party from excluding the statutory implied condition, as against a “person
dealing as a consumer” - section 11(2) of CECO prevented the exclusion of the obligation
under sections 14 (implied undertaking as to titles), 15 (sale by description) and
16 (implied undertaking as to quality and fitness) of Sale of Goods Ordinance,
Cap 26 (“SOGO”) as against “a person
dealing as consumer” (as defined under section 4 of CECO). For example, in Yee Fat Printing Equipment Ltd v Artech
Printing Ltd (unreported, HCA8590/1997, 28 January 2000) (CFI), the
court held that the obligation arose under section 15 of SOGO that goods must
correspond with the descriptions could not be excluded because it was as
against a person dealing as a consumer. That said, as against a person dealing
otherwise than as consumer (as in the present case of Last Bus Ltd (t/a Dublin Coach) v Dawsongroup Bus and Coach Ltd &
Anor, where Last Bus entered into the hire
purchase arrangement in the course of business as a coach operator),
such liability can be excluded or restricted by reference to a contract term,
but only in so far as the term satisfies the requirement of reasonableness under CECO.
Takeaway
The above decision reflects the courts’ modern approach in upholding party
autonomy and freedom of contract. It remains to be seen whether the Hong Kong court will also be less
willing to place a strained construction on an exemption
clause in commercial cases where the parties are of equal bargaining power.
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Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2023 |