LAW OF CONTRACT
LEC – Winter 2016
Lecture 5
Aims and Objectives
At the end of this lecture students should understand the following:
•
the circumstances in which pre-contractual statements amount to terms of a
contract;
•
the formation of collateral contracts;
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the principles for the incorporation of contractual terms; and
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the principles by which terms are implied into a contract.
•
the ‘exceptions’ by which a person not a party to a contract can take
enforcement action in relation to a contractual promise for his or her benefit.
Lecture 5
Terms of a Contract
(a) Express Terms
•
Text: Radan & Gooley, Chapter 10
•
This topic is concerned with establishing the express terms of the contract between the
parties to the contract. It needs to be established whether the parties intended precontractual statements to be express terms and were not merely representations.
Alternatively such statements may amount to collateral contracts – contracts that are
collateral to the main contract between the parties. Even in situations where one party
intends a statement to be a part of the contract, questions arise as to whether that party has
done enough to have the term incorporated into the contract.
•
•
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•
•
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*Ellul and Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
Oscar Chess v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10])
*Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11])
*SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9])
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C) [10.4])
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5])
Lecture 5
Terms of a Contract
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•
•
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Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])
Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6])
D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749
La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8])
(b) Implied Terms
•
Text: Radan & Gooley, Chapter 11
•
Terms may also arise by implication, either under common law principles or pursuant to
statute. Furthermore, terms can also be implied because of the existence of a custom in a
particular industry, trade or locality.
•
•
*Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (R&G(C) [11.2])
Codelfa Construction v State Rail Authority of New South Wales (1982) 149 CLR 337
(R&G(C) [11.3])
Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (R&G(C) [11.4])
*Con-Stan Industries of Australia P/L v Norwich Winterthur Insurance (Australia) P/L (1986)
160 CLR 226 (R&G(C) [11.6])
*Commonwealth Bank of Australia v Barker [2014] HCA 32
•
•
•
Express Terms
• Having established that an agreement is in place, we need to then look
at what the terms of that agreement are: ‘What are the contents of the
terms of the contract, and what do they mean?’
• Express terms are those that are expressly stated or agreed upon by
the parties. They are explicitly included in the contract by the parties.
• In the course of negotiations, the parties will make various statements
to each other. The question will often arise whether these statements
form part of the agreement between the parties.
• Express terms are statements that are promissory in nature and give
rise to contractual obligations because they indicate the party’s
obligations under the contract.
• They can be the terms of the written agreement, but also oral
representations made during negotiations.
Express Terms
• Explicit terms:
– Is the statement a term or mere representation?
– Must be promissory
Express Terms
•
There are several ways in which terms may be incorporated into a contract:
– By signature. Generally, a party signing a contractual document is
indicating that she has read and understood the document and consented
to its terms. This fundamental rule is known as the 'signature‘ rule (see
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (R&G(C) [10.4])).
– However, the rule may be displaced in cases where the signature is
procured through fraud, misrepresentation or some other vitiating factor
(Curtis)
– Terms may also be incorporated into a contract by notice. This is
especially important in cases involving unsigned documents or signs,
which affect many transactions involving travel or entry to premises. It is
often the case that one party will seek to rely on an exclusion or limitation
clause. In order to hold that the clause is incorporated as an express term,
courts will require evidence that notice of the term has been given by the
party seeking to rely on it before the contract was formed. They will also
require that the notice be given in a way that may be considered
reasonable (actual knowledge is also sufficient) .
Express Terms
– Where contracting parties have an ongoing commercial relationship, it is
often the case that they use their own documents and forms which provide
conformation or evidence of their agreement. If there is an argument as to
the effect of these, one party may argue that they have been incorporated
as express terms by prior dealings between the parties.
– Any question of incorporation of terms in written documents must take
account of the parol evidence rule. This fundamental rule states that,
where a contract is in writing, evidence cannot be introduced that will have
varying the language of the written contract. But the courts have
recognised important exceptions, one of which is a priorI
– Collateral contract. An oral promise made be written contract may be
enforceable if the signing of the contract provides consideration for the
promise. For a collateral contract to be enforceable, it must be promissory
in nature and must not be inconsistent with any express term of the written
contract.
Express Terms
Express terms v Representations
• Express terms are statements that are promissory in nature and give
rise to and give rise to obligations - because they tell the parties what
they need to do to perform the contract.
• Representations are statements that are not promissory in nature and
do not create contractual obligations. This is because they are only
‘representational’ or descriptive of the subject matter of the contract.
• There are also other specialised, ‘non-promissory’ terms that can
appear in a contract, such as: definition, interpretation and other
‘boilerplate’ clauses. These assist in interpretation of the agreement
and cannot be ‘breached’ per say.
Express Terms
Express terms v Representations
• X and Y enter into lengthy negotiations for the sale of X’s Ford
Territory to Y for $5,000. During the negotiations, X says that it is a
1996 model. After the contract is complete Y discovers that it is a
1994 model Territory and therefore worth less a than a 1996 model.
• Is the statement by X that it was a 1996 model a term of the
agreement (with the consequence that X is in breach)? Therefore, did
X promise to sell a 1996 Ford Territory, or just a Ford Territory? If it’s
the latter, there can be no breach of the contract.
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
•
Oakes listed his house for sale. The agent gave him a listing form with a list of
features of the property. One feature was whether the property had a sewerage
connection and the form said, “septic/sewer”. Oakes crossed out “septic” and put
a ditto remark next to the word sewer. He then signed the form. The agent then
added the word “yes” in the belief that the property had a sewerage connection. It
was on a septic tank (although a sewer connection was available). Elluls
inspected and agreed to pay £11,300. and signed a sale note, ‘subject to vendor’s
approval’. Oakes never signed the sale note, but the conveyance was completed.
•
When they realised that it was not connected to the sewer, the Elluls sued foo
breach of warranty and negligent misrepresentation.
•
Was the statement regarding the sewerage a mere representation or a term,
giving rise to a right of action for breach of warranty?
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
•
Held:
1. Breach of warranty, because the term was a warranty forming part of the
agreement. The remedy was damages in the amount of the cost of connecting
the house to the sewer.
2. The negligent misrepresentation action failed, because they failed to prove
damage, i.e. did not prove that the house was less than the amount that they
paid for it.
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
•
Oakes made the representation through the Multiple Listings Bureau to induce
a purchaser [the plaintiffs] to buy his property, and he succeeded in doing so.
This provided a prima facie case that it was a term that he had to displace.
• The various factors which have to be considered, include:
– The time elapsed between the making of the representation and
the final manifestation of the agreement. The longer the interval,
the more likely that it is a representation.
– The importance of the statement in the mind of the parties: The
more important the statement, the more likely that it is to be a term.
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
– Whether the statement was included or omitted when the agreement
was embodied in a more formal written document. If it was omitted, it
is more likely that it was a representation only.
– Whether the maker of the statement was, vis-à-vis the other party, in
a better position to know the ascertain the accuracy of the statement.
If so, it is more likely to be a term.
• But these are guides or inconclusive factors only. The test is ultimately:
‘Whether on the totality of the evidence, should the person making the
statement, be taken to have warranted its accuracy. In other words, did he
promise to make it good.’ [388]
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
• Or put another way: ‘Was there evidence of an intention by one or both
of the parties that there should be a contractual liability in respect of the
accuracy of the statement.’ at [387].
• It is not a question of ‘what he intended or any consensus of minds, but
of what effect the statement would have on the mind of a reasonable
person so as to make him think that such a representation was
contractual in nature, in other words that this would form part of the basis
of the contract hereafter to be entered into.’ [387]
Express Terms
Express terms v Representations
Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2])
• The intention is to be determined objectively by an analysis of ‘what was
said or done, having regard to the circumstances in which the
statements and actions happened. It is not a search for the
uncommunicated subjective motives or intentions of the parties’
– Ermogenous v Greek Orthodox Community if SA Inc (2002) 209 CLR
95, 105 – 106.
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• In 1955 Williams traded in his Morris (which he thought to be a 1948
model) for a new car at the dealership of Oscar Chess. It was bought
in 1954 and the rego papers said that it was first registered in 1948.
The OCL employee also though that it was a 1948 and checked the
registration papers and a guidebook. They gave Williams a trade-in of
£290. A few months later OCL checked the chassis and engine and
found out that it was a 1939 Morris. OCL sued Williams on the basis
that they would have only paid £175 if they knew the true age.
• Claimed that the 1948 age was a condition of the contract.
Alternatively, they claimed a collateral warranty to that effect.
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• The majority held that the statement about the car’s age was not a
contractual term but an innocent misrepresentation.
• Both parties assumed that the car was a 1948 model and this
assumption was fundamental to the contract. But this alone is not
enough (but remember factors from Ellul & Ellul v Oakes).
• This could have been a case of common mistake (discussed in week
7), allowing the buyer to set aside the contract as a whole in equity
(when Solle v Butcher was still good law – now the position is different
– see wk 7). But his claim was too late, and his only remedy now was
damages for breach of a warranty.
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• ‘It is sometimes supposed that the tribunal must look into the minds of
the parties to see what they themselves intended. That is a
mistakeIThe intention of the parties can only be ascertained from the
totality of the evidenceIThe question of whether a warranty was
intended depends upon the conduct of the parties, on their words and
behaviour, rather than their thoughts.’ [327]
• If a seller states a fact which is or should be within her knowledge and is
not in the buyer’s knowledge, and she intend that the buyer should act
on it (and the buyer does so), then it is easy to infer a warranty.
• The same applies if the seller makes a promise about something that
should be within her control.
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• BUT, if the seller, when he states a fact, makes it clear that he has no
knowledge of his own and is passing on/relying on information that he
has gotten elsewhere, then it is not so easy to imply a warranty.
• Here it must have been obvious that to both parties that Williams had no
personal knowledge of the correct year of the car and that he was relying
on the registration book (he was not the first or even second owner).
• It is unlikely that a person in that position would warrant the year of
manufacture. An intelligent bystander would say that Williams did not
intend to bind himself.
• He had no better a source of knowledge: the log book.
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• The majority held that is a difference between saying:
– ‘I believe the car is a 1948 Morris. Here is the registration to prove it.’
– ‘I guarantee that is a 1948 Morris. This is borne out by the rego book.
But you need not rely upon that; I given you my personal guarantee it
is.’
Express Terms
Express terms v Representations
Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3])
• Contrast that decision with Dick Bentley Productions Ltd v Harold Smith
(Motors) Ltd [1965] 2 All ER 65.
– DB purchased a car from HS. Hs said that the car had only travelled 20,000 miles since
having the gearbox replaced. That was false. DB sued for damages for breach of the
agreement.
– The C of A held that this was a term of the agreement. The Court ruled that if the
representation is made in the course of dealings for the very purpose of inducing the
other party to enter into the agreement, that creates a rebuttable inference that it was
intended as a term, which the maker can rebut.
– The Court said that the inference was rebutted, but here it wasn’t.
– This rule (of rebuttable presumption) is of doubtful authority in Australia (see JJ Savage
and Sons Pty Ltd v Blakney (1970) 119 CLR 435, 442.
Express Terms
The effect of signing a contract
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C)
[10.4])
• Alphafarm bought a flu vaccine from Ebos. It was to be stored after
importation and then transported to the customers by Toll. On the front of
the document, above the signature mark, it said ‘Please read conditions
of contract (overleaf) prior to signing’. Alphafarm’s agent did not read the
conditions or discuss them. One of the included terms was an exclusion
clause that prevented liability for damage to the vaccine.
• The vaccine was destroyed in transit (because stored at too low a
temperature).
• Did the exclusion clause form part of the contract?
Express Terms
The effect of signing a contract
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C)
[10.4])
• High Court of Australia: YES
• Signing a document which is known and intended to affect legal relations
is an act which ordinarily conveys a representation to a reasonable
reader that the signing party has read and approved the contents of the
document
• This representation is even stronger when the signature appears below a
request to read the document before signing it.
• Subject to fraud or some other vitiating circumstances, it will be binding
upon the signing party, whether she has read it or not.
Express Terms
The effect of signing a contract
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C)
[10.4])
• This therefore applies when a party sends an illiterate agent to sign on
his behalf.
• If it has been signed without a vitiating factor, does not require the other
party to show that “due notice has been given” of the relevant terms. The
signing party is bound by the document and it is irrelevant whether he
has read the terms. Ticket case principles do not apply here.
• This principle raises tension with the doctrine of ‘non est factum’
(discussed in week 8).
Express Terms
The effect of signing a contract
• Signing a document that refers to terms of a contract which are contained
in a separate document will generally result in those terms being
incorporated into the contract: Ange v First East Auction Holdings Pty Ltd
(2011) 284 ALR 638.
• But if the terms in the separate document are unusual, there may be an
argument may be required for incorporation, depending upon the
circumstances.
Express Terms
The effect of signing a contract
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C)
[10.4])
• Exceptions:
– Misrepresentation
– Mistake
– Duress
– Contracts Review Act 1980 (NSW)
– Undue influence
– Unconscionable conduct ( including non est factum)
Express Terms
Misrepresentation and the signature rule
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5])
• Curtis took a white satin dress for chemical cleaning. She was asked to
sign a piece of paper called ‘receipt’ by an employee. When she asked
why, she was told that the shop did not accept certain types of liability,
including damage to sequins and beads on the dress. She signed. Later
she read the clause, it excluded liability ‘for damage howsoever arising’
• When returned, the dress was stained. The defendant denied negligence
and relied upon the exclusion clause.
• Could the exclusion clause be enforced in light of the misrepresentation
made by the defendant’s employee about what was excluded?
Express Terms
Misrepresentation and the signature rule
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5])
• NO.
• Affirms the signature rule and says that the signature does not bind in case
of fraud or misrepresentation. What is a sufficient misrepresentation?
• Behaviour (words or conduct) is sufficient to be a misrepresentation if it is
such as to mislead the other party about the existence or extent of the
exemption. If it conveys a false impression, that is enough (whether
fraudulent or innocent).
• If a party puts forward a printed form for signature, a failure to draw
attention to the existence or the extent may in some circumstances convey
the impression that there is no exclusion at all [!!]
Express Terms
Misrepresentation and the signature rule
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5])
• Here failing to draw attention to the width of the exemption clause, the
assistant created the false impression that it related only to beads and
sequins.
• But even if the assistant had said nothing, this may have conveyed the
impression that there was no exclusion clause. The cleaners may not
have been better off handing over the document without asking her to sign
it? - How does this work with the signature rule?
• Also note that it has been argued that in relation to on-line forms, clicking
in the box ‘I agree’ is not included within the signature rule – See (R&G
[10.36])
Express Terms
Incorporation of terms by reasonable notice
• Although reasonable notice is not a factor in cases to which the signature
rule applies, it is a crucial factor in cases of unsigned documents or
writing on signs or tickets which are alleged to form part of the contract.
• In such cases the clauses set out in the documents will not be included in
as express terms of the contract unless reasonable notice of them was
given to the party to be bound.
• The party affected by sufficient notice, even if not actually aware of the
term in question, is regarded as having constructive knowledge of it: HIH
Casualty & General Insurance Ltd v New Hampshire Insurance Company
[2001] Lloyd’s Rep 161 at 199.
• Two issues:
– Reasonableness of the notice
– Timing of the notice
Express Terms
Incorporation of terms by reasonable notice - reasonableness
Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6])
• Parker and Gabell left their bags in the cloak rooms of the defendant’s
railway station. Parker paid his money and received a ticket that
contained a date and number on one side and some writing on the other.
He was aware of the writing but did not read it. The writing included an
exclusion clause limiting liability for packages to £10.
• When they returned for their bags, they couldn’t be found. The company
relied on the exemption clause to avoid liability.
• On appeal: can a person be bound by the terms of an exemption clause if
she has not read the clause but had been aware of writing of which the
clause formed a part?
Express Terms
Incorporation of terms by reasonable notice - reasonableness
Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6])
• Held: The majority ordered a new trial.
1. If in the course of making a contract one party delivers to another a
paper containing writing, and the party receiving the paper knows that
the paper contains conditions which the party delivering it intends to
constitute the contract, the party receiving the paper does, by receiving
and keeping it, assent to the conditions contained in it, although he does
not read them and does not know what they are.
2. If, on the other hand, the person receiving the ticket does not know that
there is any writing upon the back of the ticket, he is not bound by a
condition printed on the back.
But here, it was in between those two scenarios!
Express Terms
Incorporation of terms by reasonable notice - reasonableness
Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6])
• Here, they did know there was writing, but did not know that they were
terms of the agreement and therefore did not read the writingI.
• In the absence of actual knowledge, the delivery of the document or thing
(or the placement of the sign) must be done in such a way that the other
party can be taken to have been given reasonable notice of it.
• In this context, in the case of documents, a distinction can sometimes be
drawn between documents that are in their nature contractual (bills of
lading e.t.c.) and those that are not (tickets, receipts, vouchers).
Express Terms
Incorporation of terms by reasonable notice - reasonableness
Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6])
• In the first case, mere delivery may be good enough for reasonable notice
• In the second, merely handing it over is not enough. The party relying
upon it must take reasonable steps to draw the recipient’s attention to it.
• Here it was referred back to the jury to decide whether the delivering of
the ticket to the plaintiff was in such a manner that, seeing that there was
writing upon it, it was reasonable notice that the writing contained
conditions,
Express Terms
Incorporation of terms by reasonable notice - reasonableness
Causer v Browne [1952] VLR 1 (R&G [10.44])
• Causer had her dress dry-cleaned at Browne’s dry-cleaning business.
When the dress was left with Browne, a docket was handed over which
contained an exclusion clause at the bottom. The dress was damaged
and Browne sought to rely upon the exclusion.
• The Court held that the clause was not a term of the agreement. It was
merely a voucher to be produced when collecting goods, and would not
be seen by a reasonable per son as contractual in nature. Because no
steps were taken to draw Causer’s attention to the exclusion clause, it
was held not to be part of the contract.
• What steps are needed to bring it to the attention of the purchaser? –
– It depends upon the circumstances and the nature of the clause: Oceanic Sun
Line Shipping v Fay
Express Terms
Incorporation of terms by reasonable notice - timing
Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])
• Thornton parked his car in a multiple storey car park to which he had not
been before. At the front of the car park was a large sign with certain
information, including the name of the car park, prices and the words ‘All
cars parked at owner's risk'.
• When he approached the entrance, a ticket was dispensed from a
machine. The ticket, which he did not read, contained information about
the time of issue, payment details and the following words in small print:
'This ticket is issued subject to the conditions of issue as displayed on the
premises.’
Express Terms
Incorporation of terms by reasonable notice - timing
Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])
• Inside the premises there was a pillar opposite the ticket machine on
which certain conditions displayed, including a term exempting the car
park for liability for any physical injury to patrons.
• Thornton was seriously injured in the grounds of the car park. He sued to
recover damages for his injuries on the basis of the car park's
negligence. Was the reference, on the ticket given to Thornton, to
conditions of entry displayed inside the car park, sufficient notice for the
exemption clause to be incorporated in the contract as one of its terms?
Express Terms
Incorporation of terms by reasonable notice - timing
Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])
• HELD: NO
• He is not bound by terms on the ticket if they are different to those on the
notice, because they ‘come too late’. The ticket is no more than a
voucher or receipt for the money that has been paid on terms which have
been offered and accepted before the ticket is issued.
• The offer was made by the sign at the front and accepted when he
entered the car park and took the ticket. It was then concluded. He
could assume that the issue of the ticket on ‘conditions’ mean that they
were merely regulatory unless the exclusion clause was specifically
drawn to his attention.
Express Terms
Incorporation of terms by reasonable notice - timing
Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])
• The carpark did not do what was reasonably sufficient to give him notice
of the exemption clause.
• Before it can be said that a condition has been fairly brought to the notice
of a party, there must be clear indication which would lead an ordinary
sensible person to realise, at or before the time of making the contract,
that a term of that sort, relating to personal injury was-sought to be
included.
‘I certainly would not accept that the position has been reached today in which it is to
be assumed as a matter of general knowledge, custom, practice, or whatever is the
phrase that is chosen to describe it, that when one is invited to go upon the property
of another for such purpose as garaging a car, a contractual tern is normally included
that if one suffers any injury on the premises as a result of negligence on the part of
the occupiers of the premises they shall not be liable.’
Express Terms
Incorporation on the basis of prior dealings
•
This is ultimately a question of reasonableness It will often depend upon the
number and consistency of past dealings. [See R&G 10.53]
•
There have been competing authorities as to whether the terms in question
had to have formed part of each of the previous agreements.
– e.g. if there is an exclusion clause in a document that is provided after a
contract if formed (such as a ticket or a sign) and therefore that document
does not for part of the agreement itself, does the fact that this document
and its terms have been provided (after the fact) to the party on a number
of occasions throughout a course of dealings? (see [R&G 10.54 – 10.58])
e.g.:
• Henry Kendall v William Lillico & Sons Ltd [1969] 2 AC 31 – Doesn’t
matter
• DJ Hill v Walter H Wright – Does matter. Not incorporated
Express Terms
Incorporation on the basis of prior dealings
La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8])
•
La Rosa was an independent contractor who had carried out cartage work for
Nudrill on a number of occasions. Nudrill Pty Ltd usually engaged him for specific
jobs by way of short telephone conversations.
•
After each job, La Rosa provided an invoice showing details and stating that the
work was done subject to terms and conditions printed on the reverse side, one of
which purported to exclude La Rosa's liability for any loss or damage of property
and/or goods of the client.
•
Rosa drove his semi-trailer around a roundabout too fast and a drill rig he was
carrying fell off the vehicle and was damaged. When he was sued or the damage,
La Rosa argued the exclusion clause protected him from liability as it had become
part of the contract through a consistent course of prior dealings between the
parties.
•
Was the exclusion incorporated as an express term?
Express Terms
Incorporation on the basis of prior dealings
La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8])
•
HELD: NO.
‘It will be a question of fact and degree whether in a particular case, the parties, by
their conduct, have incorporated a term into their contract by a previous course of
dealings. Each case turns on its own facts and circumstances. Factors of relevance
in determining whether the alleged term was incorporated include the number of prior
dealings, how recent they were and the consistency in the prior dealings and the
dealing in question (for example, the similarity between the subject matter, of the
dealings and the manner in which the dealings were entered into or concluded). This
is not, of course, an exhaustive statement of relevant factors.’ [62]
•
A term may be incorporated by a previous course of dealings without it being
essential that the party relying it to establish that the other party had actual
knowledge of it.
Express Terms
Incorporation on the basis of prior dealings
La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8])
•
It is not an essential pre-condition to the incorporation of a term by a previous
course of dealings that:
a) any document containing the relevant term have been sent or given to the
party sought to be bound at or prior to the formation of each of the contracts (or
one or more of them) constituting the previous course of dealings; or
b) the relevant term has been incorporated in at least one of the contracts
constituting the previous course of dealings.
•
BUT, the time when any document was in fact given or sent to the party sought to
be bound, and that party's degree of knowledge (if any) of the document or the
alleged term, will be relevant in determining whether it was given reasonable notice
of the alleged term and, if so, what the party seeking to rely on the alleged term
was reasonably entitled to conclude from the actions or conduct of the other party.
Express Terms
Incorporation on the basis of prior dealings
La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8])
• Here there was a lack of proximity between some of the transactions
(there was a six year gap).
• Other course of dealings were not sufficiently frequent.
• There was no evidence of actual knowledge of the term or had read them
(not essential, but a relevant factor).
Express Terms
Parol Evidence Rule
• (parol = verbal expressions or words)
• The purpose of the parol evidence rule is to exclude extrinsic evidence
(evidence beyond the contents of the contractual materials themselves),
such as evidence of pre and post contractual negotiations, that will have
the effect of adding to, subtracting from or varying or qualifying the
language of an entirely written contract.
1. Extrinsic evidence of prior negotiations is excluded for the interpretation
of contractual terms.
2. Extrinsic evidence of post contractual conduct is excluded in
interpretation of contractual terms.
Express Terms
The Parol Evidence Rule
• Where the contract is wholly in writing, or intended to be wholly in writing,
the express terms of that agreement are generally the only terms that are
recorded in the written contract.
• Subject to an exception, a party cannot include anything previously said
or written before the contract was signed. Two issues arise:
– What is meant by extrinsic evidence?
• All forms of extrinsic evidence
– Only applied to written agreements.
• Therefore not partially oral/partially written agreements.
• Does the rule apply to threshold question of whether the contract is
written or partly oral?
Express Terms
The parol evidence rule
*SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9])
•
Heath entered into several contracts with the SRA to construct hoardings on
SRA property for the display of advertising material. Two five-year contracts
contained a clause to the effect that the SRA could terminate the contract at
any time upon the giving one month's notice. When questioned about the
likelihood of the SRA invoking the clause, the managing director alleged he
was told that the only time the clause is ever invoked is for non-payment of
rent or if somebody wants to advertise objectionable advertising content. A
separate representation was allegedly made to the effect that the termination
provision applied only to hoardings which belonged to the SRA not ones on
rented land.
•
When the SRA terminated the agreement because of a ministerial policy to
phase out cigarette advertising, Heath claimed the pre-contractual assurances
gave rise to an estoppel or amounted to a collateral contract on the basis of
which the agreements had been executed.
Express Terms
The parol evidence rule
*SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9])
•
HELD: Comments of SRA not sufficient to warrant estoppel or collateral
contract.
•
McHugh JA (on the parol evidence rule):
• It has no operation until it is first determined that the terms of the
agreement are wholly contained in writing. The tendering of oral evidence
to prove a contractual term, therefore, cannot be excluded until it is
determined that any terms in writing record the whole of the parties'
agreement.
• The correct rule is that the existence of writing which appears to represent
a written contract between the parties is no more than an evidentiary
foundation for a conclusion that their agreement is wholly in writing.
Express Terms
The parol evidence rule
*SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9])
“the mere production of a contractual document, however complete it may
look, cannot as a matter of law exclude evidence of oral terms if the other
party asserts that such terms were agreed. If that assertion is proved,
evidence of the oral terms cannot be excluded because the court will, by
definition, have found that the contractual terms are partly to be found in what
was agreed orally as well as the document in question. No parol evidence
rule could apply. On the other hand, if that assertion is not proved, there can
be no place for a parol evidence rule because the court will have found that
all the terms of the contract were set out in the document in question and, by
implication, will thereby have excluded evidence of terms being found
elsewhere.”
The Law Commission
Express Terms
Collateral contracts
• A agrees to lease his farm to B and a detailed written lease agreement is
prepared by A for the parties to sign. The written lease agreement covers
all the terms one would generally expect to find in a contract of this type.
B is in agreement with all of its terms. However, before B signs the
lease, he seeks an assurance from A that the drainage system on the
farm is in good working order. The written agreement prepared by A is
silent on this matter. A promises to B that the drainage system is in
excellent condition. B signs the lease but later discovers that the
drainage system is not in good working order.
• Can B sue A for breach of contract in relation to the fact that the drainage
system is not working as promised by A? In other words, does the oral
promise made by A about the drainage system amount to an express
term of the contract between A and B, notwithstanding that the promise
does not appeal in the written lease?
Express Terms
Collateral contracts
• This example raises the issue of collateral contracts. A's assurance as to
the condition of the drains could amount to a contract that is separate
and distinct from the written lease.
• The separate contract is referred to as a collateral contract.
• The court has held in similar circumstances that that the written lease
was an entirely a written contract to which the parol evidence rule
applied, but the assurance about the condition of the drains constituted a
collateral contract. The collateral contract in the scenario consists of one
express term, namely the promise by A that the drains on the farm are in
excellent condition. The consideration for A's promise is entry into the
main contract by B - in this case the formation of the written lease. If the
main contract is one for which there exists a statutory requirement of
writing, there is no need for the collateral contract to also be in writing.
Express Terms
Collateral contracts
• For a statement to amount to an independent contract that is collateral to
the 'main‘ written contract between the parties, two elements must be
satisfied:
1. that the statement is promissory in nature; and
2. that there is no inconsistency between the main contract and the
alleged collateral contract.
• However, courts may be reluctant to find a collateral contract if the
statement alleged to be a collateral contract is one that you would expect
to find its place naturally in the principal contract: Shepperd v Council for
the Municipality of Ryde (1952) 85 CLR 1, 12.
Express Terms
Collateral contracts
J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10])
• During negotiations with the Savage company about the construction of a
motor boat, Blakney sought advice on the type of engine that could be
installed. In correspondence between them, the company manager
recommended an engine that had an ‘estimated’ speed of 15 mph. When
Blakney placed his order, which included the recommended engine, he
signed a written agreement that did not refer to the boat's speed.
• After construction and purchase, the boat could only reached 12 mph,
Blakney sued, claiming that the reference in correspondence to the boat's
speed capacity was a condition or warranty of the contract or that it
amounted to a collateral warranty.
• Was it a collateral contract?
Express Terms
Collateral contracts
J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10])
• HELD: NO.
• Was there a promise that the boat would attain that speed? The
statement has to be promissory and not merely representational.
• On receipt of the letter there were three courses open to Blakney:
1. He could have required speed to be inserted in the specification as a
condition of the contract;
2. He could have sought a promise however expressed, whether as an
assurance, guarantee, promise or otherwise - that the boat would attain
the speed as a prerequisite to his ordering the boat.
Express Terms
Collateral contracts
J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10])
3. He could be content to form his own judgment as to the suitable power
unit for the boat relying upon the opinion of Savage.
Only the second course would give rise to a collateral warranty. Here there
was nothing in the evidence to support the view Blakney took either the first
or second of these courses.
Express Terms
Collateral contracts and the need for consistency
*Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11])
•
Spencer sub-leased premises to Hoyts for a period of four years. It was a term
of the sub-lease that Spencer had the right to terminate the lease at by giving
at least four weeks' notice in writing. At the time the sub-lease was executed,
Spencer assured Hoyts that he would not terminate unless he was required to
do so by the lessor under the head lease.
•
However, at one point during the term, Spencer did give notice in writing for
Hoyt's to vacate even though no direction had been given by the lessor. After
Hoyt's left, it sued on the grounds that a collateral contract had been made
when Spencer promised he would not terminate the sub-lease unless required
to do so under the head lease. They argued the consideration for the collateral
contract was their entry into the sub-lease.
•
Could a promise that contradicted an express clause in the agreement support
collateral contract?
Express Terms
Collateral contracts and the need for consistency
*Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11])
•
Held: NO
•
The main contract must be taken as is.
“The truth is that a collateral contract, which may be either antecedent or
contemporaneous, being supplementary only to the main contract, cannot
impinge on it, or alter its provisions or the rights created by it; consequently
where the main contract is relied on as the consideration in whole or part for
the promise contained in the collateral contract, it is a wholly inconsistent and
impossible contention that the other party is not to have the benefit of the
main contract as made.”
• Here the collateral contract is clearly inconsistent with the main
agreement.
Express Terms
Collateral contracts and the need for consistency
*Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11])
• It has been argued that the effect of this rule can be circumvented if the
principles of equitable estoppel are satisfied.
Implied Terms
• Implied terms can be categorised as follows:
1. terms implied to give efficacy to a particular contract based upon the
facts and circumstances of a particular case;
2. terms which the law finds in a certain class of contract, either pursuant to
the common law or statute, although those terms may not find specific
expression in the contractual statements or documents of the parties;
and
3. terms implied into a contract to give effect to a notorious custom or
usage in a particular trade, industry or locality.
• Terms implied in fact or by custom can be described as sub-categories of
the broader category of terms which are implied into a contract to give
effect to the presumed intentions of the parties. Terms implied by law do
not depend on the intentions of the parties and are implied on more
general considerations.
Implied Terms
Implication of terms on the facts of the case
• The implication of such terms is designed to give effect to the presumed
intention of the parties.
• The principles to be applied depend upon whether the contract is formal
or informal.
• Formal contracts
• In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR
266 ,Lord Simon in the Privy Council listed the five requirements
necessary to be satisfied as follows:
Implied Terms
Implication of terms on the facts of the case
1. It must be reasonable and equitable.
2. It must be necessary to give business efficacy to the contract, so
that no term will be implied if the contract is effective without it.
3. It must be so obvious that it goes without saying.
4. It must be capable of clear expression.
5. It must not contradict any express term of the contract.
Implied Terms
*Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127
(R&G(C) [11.2])
• Lord Hoffman said that this list is best regarded, not as a series of
independent tests, which must each be surmounted, but rather as a
collection of different ways in which judges have tried to express the central
idea that the proposed implied term must spell out what the contract actually
means.
[T]he approach adopted in the BP Refinery case should not necessarily be
regarded as a cumulative list of elements all of which must be satisfied before a
term can be implied. However, each element is a useful indicator relevant to the
ultimate question of what a reasonable person would have understood the
contract to mean. This is construed objectively by a notional reasonable person
with knowledge of the relevant background.
Hickman v Turn and Wave Ltd [2011] 3 NZLR 318
Implied Terms
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 33 (R&G(C) [11.3])
•
Codelfa agreed to build a part of the Eastern Suburbs rail line. There was
a fixed agreement that Codelkfa would finish the work in 130 weeks for a
fixed price and would bear the cost of any difficulties or delays. It
anticipated work being done in a 3 shifts per day, 6 days per week, plus
some Sunday work.
•
The SRA had a statutory immunity from nuisance suits and Codelfa
mistakenly believed that this covered it.
•
The work schedule was blocked in the Supreme Court by a nuisance action
brought by locals against Codelfa, and it could only work 2 shifts per day
(not at night) and not on Sundays.
•
Codelfa argued that there was there an implied term in the contract to
protect Codelfa economically from the injunctions regarding work hours.
The Meaning of Terms
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 33 (R&G(C) [11.3])
• Arbitrator said ‘Yes’.
• Supreme Court also said ‘Yes’ but changed the term.
• Court of Appeal said ‘Yes’ but changed the term again.
• Codelfa went to the High Court of Australia because it was unhappy
with the new form of the term and wanted to improve it. The SRA
wanted to get rid of it.
Implied Terms
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 33 (R&G(C) [11.3])
• It is not enough that it is reasonable to imply a term. It must be
necessary to give business efficacy to the contract.
Obviousness
• Would the parties have readily agreed on the proposed implied term if it
had been suggested to them I the course of their negotiations? - The
‘officious bystander test’
• Here could not be said that ‘it goes without saying’ that this terms is
what the parties intended to insert to in anticipation of the injunction.
• This overlaps with business efficacy.
Implied Terms
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 33 (R&G(C) [11.3])
• It is not enough that it is reasonable to imply a term. It must be
necessary to give business efficacy to the contract.
Obviousness
• Would the parties have readily agreed on the proposed implied term if it
had been suggested to them I the course of their negotiations? - The
‘officious bystander test’
• Here could not be said that ‘it goes without saying’ that this terms is
what the parties intended to insert to in anticipation of the injunction.
• This overlaps with business efficacy.
Implied Terms
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 33 (R&G(C) [11.3])
‘[T]here remains an insurmountable problem in saying that it goes without
saying that had the parties contemplated the possibility that their legal
advice was incorrect and that an injunction might be granted to restrain
noise or other nuisance, they would have settled upon the term implied by
the Court of Appeal or that implied by the arbitrator [and by the Supreme
Court]. l doubt whether the fiction of treating the parties as reasonable and
fair makes the problem any the less difficult. This is not a case in which
[356] an obvious provision was overlooked by the parties and omitted from
the contract. Rather it was a case in which the parties made a common
assumption which masked the need to explore what provision should be
made to cover the event which occurred. In ordinary circumstances
negotiation about that matter might have yielded any one of a number of
alternative provisions, each being regarded as a reasonable solution.’
Problems
• Helen owns a suburban parking station. At the entrance to the station, an
automatic machine issues customers a ticket as they drive in and printed on the
front is “Customers are kindly requested to note that vehicles are parked only
subject to the conditions displayed on the premises.” The conditions are
displayed on a notice attached to the wall of the office to which customers go to
pay the parking fees prior to leaving the parking station. The notice reads:
Conditions of Parking
The station is open from 6am to 12pm midnight. Charges are $2 per hour or part
thereof; for vehicles left overnight an additional fee of $200 is payable. Helen
regrets that she cannot accept any responsibility for any harm, loss or damage
whatsoever.
•
When customers pay the parking fees they are given a document headed
“Receipt” which indicates the amount paid and also repeats the words of the
notice on the wall.
• Andrew, Joan and Peter all recently parked their cars in the parking station. They
had each used the station about once a month over the past year, but had never
read the ticket, the notice or the receipt (all of which have been used in exactly
the same form throughout the period).
Problems
• Andrew’s car was stolen when a thief persuaded Helen that he was the owner
of the car and had lost his ticket, and Helen allowed him to take the car away.
The car has not been recovered.
• When Joan came to collect her car, Helen was assisting another customer
who had trouble parking his car. Helen carelessly drove over Joan’s foot
causing her considerable injury.
• Peter had too much to drink after work at the pub, forgot about his car until
the station had closed and was outraged the next morning when the cashier
demanded payment of $200 in addition to the normal parking fee. He refused
to pay the $200.
• Helen is threatening to sue Peter for $200. Andrew is threatening to sue
Helen for the value of his car and Joan is threatening to sue Helen for
compensation for her injuries.
What would your advice be to all the parties?
Problems
• John owned a truck and operated a business carrying goods within the Sydney
metropolitan area. He sometimes drove the truck himself but often employed
casual drivers to do this work.
• Tom operated a small business manufacturing high quality clothing. In October he
needed several cartons containing clothing to be delivered to a customer and, as
the carrier he usually used could not do the job for several days, he telephoned
John who agreed to deliver the goods that day at a price of $50. On that day John
employed Bill (who had not worked for him before) to drive the truck. When he
arrived at Tom’s premises to pick up the cartons, Bill handed to Tom a printed
document headed ‘Invoice’. It contained handwritten details of Tom’s name and
address and that of the firm to which the cartons were to be delivered, and of the
price for the job. The invoice contained a printed statement that the price must be
paid within 7 days and also contained, at the bottom, the following printed
statement:
Important
All goods are accepted on the basis that the carrier is not liable for more than two
times the contract price in the event of any loss or damage whatsoever. The benefit
of this clause extends to all servants, agents and sub-contractors of the carrier, for
whom the carrier contracts as agent.
Problems
• Tom had dealt with John 10 times over the previous three years. On each
occasion the agreement for the job was made over the telephone and the
driver (who was sometimes John but often another driver) handed an invoice
to Tom when the goods were picked up. On each occasion the invoice was
(except for the handwritten details) identical to that handed over on this
occasion. On none of these occasions did Tom read the notice at the bottom
of the invoice.
• The goods, valued at $5,000 were stolen when Bill stopped at a hotel for a
drink while on the way to the destination.
• John has paid Tom $100 but refuses to pay any more. Bill refuses to pay
anything to Tom.
Advise Tom.