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  1^st 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  2^nd 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