Contract Law – Contents of Contracts

Implied Terms

  • An implied term is not explicitly stated but is considered part of the contract.
  • Terms can be implied by court or by statute.
    • (i) Implied by Custom: Terms implied based on established custom and practice necessary to complete the transaction (Hutton v Warren).
    • (ii) Implied by Common Intention: Terms implied by courts from the common intentions of contracting parties using the business efficacy test (The Moorcock) or officious bystander test.
    • (iii) Necessity of Law: Terms must only be implied if necessary as a matter of law. For example, the Hong Kong Court of Final Appeal implied a term in a sale and purchase agreement of real property (Twinkle Step Investment Limited ) where vacant possession was to be given upon completion that the purchaser was entitled to inspect the property before completion.
    • (iv) Implied by Statute: Terms implied by statute, especially in employment and consumer contracts (Supply of Services (Implied Terms) Ordinance Cap 457).

Classifications of Terms

  • (i) Conditions: Essential terms, breach allows termination and damages.
  • (ii) Warranties: Less important terms, breach allows only damages.
  • (iii) Intermediate or Innominate Terms: Terms where the court assesses the impact of the breach to determine consequences. The court isn't bound by the label used by the parties in deciding on the classification of a term.

Exemption Clauses

  • Definition:
    • An exemption clause excludes or restricts liability for misrepresentation, negligence, or breach of contract. A limitation clause restricts liability to a sum of money.
    • Exemption clauses are defenses against claims for misrepresentation, negligence, or breach of contract.
  • Exemption Clauses and Consumer Protection:
    • Common law courts limit exemption clauses to protect consumers.
    • The exemption clause must pass two tests:
      • (i) Incorporation: The clause must be part of the contract through signature or notice. The party relying on the exemption clause must take reasonable steps to bring it to the attention of the other party.
      • (ii) Construction/Interpretation: The wording of the clause must cover the wrong; modern courts interpret without straining the meaning of words. This relaxation occurred due to increased consumer protection via the CECO.
        • CECO (Control of Exemption Clauses Ordinance) renders exemption clauses either void or subject to a reasonableness test (s1, Second Schedule).
        • The court considers any relevant factor, with inequality of bargaining power being most important.