Does unfair contract terms legislation apply?
The Control of Exemption Clauses Ordinance relates predominately to business-to-consumer contracts, but some provisions do relate to business-to-business contracts and can apply to liquidated damages clauses. To determine whether a liquidated damages clause is unenforceable under this Ordinance will largely depend on the circumstances of the case, but the party seeking to rely on the liquidated damages clause will need to satisfy the “reasonableness” test set out in the Ordinance. 7 For business-to-consumer contracts, both the Control of Exemption Clauses Ordinance and the Unconscionable Contracts Ordinance may apply with respect to liquidated damages clauses. The recent case of Shum Kit Ching v Caesar Beauty8 highlights that a liquidated damages clause in a consumer contract may be unenforceable if it is a penalty or unconscionable.
