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4. To avoid certain liabilities, some business people insert exemption or exclusion clauses into their contracts. Are these contract terms valid under the law?

Exemption clauses are used to avoid liability when things go wrong. Such clauses are not always effective, and are regulated by the Control of Exemption Clauses Ordinance (Cap. 71 of the Laws of Hong Kong). Exemption clauses that exclude liability for death and personal injury are usually not effective. For those that exclude liability for financial loss or damage to property, their validity is subject to a "reasonableness" test. Schedule 2 of the Control of Exemption Clauses Ordinance sets out some guidelines on what may be considered "reasonable".

Exemption clauses are also controlled by the rules of common law. For example, an exemption clause must be incorporated into the contract, and the person who is seeking to rely on the exemption clause must show that reasonable steps have been taken to bring the clause to the attention of the other party.

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