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LAW OF CONTRACT

LEC – Summer 2017/2018

Week 5

Express/Implied Terms

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Lecture 5Aims 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;

• the principles for the incorporation of contractual terms; and

• 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.

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Lecture 5Terms of a Contract

(a) Express Terms

• Text: R&G, 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 pre-contractual 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.

• *Ellul and Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2C])

• Oscar Chess v Williams [1957] 1 All ER 325 (R&G(C) [10.3C])

• J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10CC])

• *Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11CC])

• *SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9CC])

• Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C) [10.4C])

• Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5C])

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Lecture 5Terms of a Contract

• Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7C])

• Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6C])

• 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) [10.8C])

(b) Implied Terms

• Text: R&G, 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) [11.2C])

• Codelfa Construction v State Rail Authority of New South Wales (1982) 149 CLR 337

(R&G(C) [11.2CC])

• Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (R&G(C) [11.4C])

• *Con-Stan Industries of Australia P/L v Norwich Winterthur Insurance (Australia) P/L (1986)

160 CLR 226 (R&G(C) [11.6C])

• *Commonwealth Bank of Australia v Barker [2014] HCA 32

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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?’

• There are two types of terms:

– Express terms

– Implied terms

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Terms

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.

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Terms

Implied terms

• 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.

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Express Terms

• If a statement is made in writing or orally prior to entry into the contract, how do we know that it forms part of the contract? i.e. How do we know if it has been incorporated as a term of the contract?

• There are a number of ways that this can come about:

– An oral statement made during negotiations prior to entry into a written agreement, may become one of the terms of that agreement (thereby making the contract partly written/partly oral).

• *Ellul and Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2C]

• Oscar Chess v Williams [1957] 1 All ER 325 (R&G(C) [10.3C])

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Express Terms• There are a number of ways that this can come about:

– 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

• Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (R&G(C) [10.4C]).

– However, the rule may be displaced in cases where the signature is procured through fraud, misrepresentation or some other vitiating factor

• Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5C]) (And see lectures 7 and 8)

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– 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.

• Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7C])

• Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6C])

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– 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.

• 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) [10.8C])

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– 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 (and intended to be full in writing), extrinsic evidence cannot be introduced that will have the effective of adding to/subtracting from, or 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.

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Express TermsExpress terms v Representations

• But do all pre-contractual statements become terms of the contract?

• The purpose of classifying statements made prior to entry into the contract is straightforward: a statement which is not a term has no contractual force.

• The basic classification is between terms and representations. In this context the word ‘term’ has a narrower meaning, and describes a contractual statement which amounts to an undertaking or guarantee, by the maker of the statement, of its truth or that the maker had reasonable grounds for making it. In most cases the promisor is strictly liable on the undertaking to guarantee the truth of the statement, liability in damages does not depend on whether reasonable care was exercised.

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Puffs

• At the lowest end of the scale are laudatory statements not intended to be taken seriously. ‘Sales’ talk or ‘puffery’ on behalf of a seller of goods, for example, that a motor vehicle is the ‘best on the market’, does not have contractual force

Representations

• Are statements that are not binding in nature and do not create contractual obligations. This is because they are only ‘representational’ or descriptive of the subject matter of the contract.

• Because a representation has no contractual force, its falsity does not give rise to a claim for damages for breach of contract (but may allow for rescission – see Week 7).

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Representations

• If the representor has been guilty of fraud the representee is able to pursue a remedy in tort (deceit).

• And in certain circumstances negligence on the part of a representor may also provide the representee with a claim for tortious damages (negligent misstatement).

• However, if the representation is innocently made there is no liability in damages at common law and the representee’s only remedy is rescission.

• Under statute, reliance on an innocent misrepresentation, or other misleading or deceptive conduct, may give rise to a claim for damages (e.g. ACL) (See week 7).

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Express Terms

Express terms v Representations

• 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.

• What distinguishes a term from a mere representation is the intention of the maker of the statement to guarantee its truth.

• As they are terms of the contract, their breach gives rise to a remedy of damages.

• 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.

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• So what is the difference?

• 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.

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Express TermsDeciding whether a statement is a term of the agreement

Ellul & Ellul v Oakes (1972) 3 SASR 377 (R&G(C) [10.2C])

• 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). Ellulsinspected 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 for breach of warranty (contract) and negligent misrepresentation (tort).

• Was the statement regarding the sewerage a mere representation or a term, giving rise to a right of action for breach of warranty?

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Held:

1. On appeal it was held to be a 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 (tort) action failed, because they failed to prove damage. The court said that the measure of damages would have been the difference between what the plaintiff paid and the value of what he/she got. Here the plaintiff did not prove that the house (without sewer) was less valuable than the amount that they paid for it.

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Held:

• The Court relied on Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3]) and *Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65:

• If a representation is made in course of dealings for the purpose of inducing the other party to act upon it, and does induce him/her to act upon it, by entering in to the contract, that is prima facie grounds for inferring that it was intended to be a warranty. It is not necessary to speak of it being collateral.

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Express Terms

Deciding whether a statement is a term of the agreement


• 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 (which the defendant 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.

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– 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.’ [387], [388]

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• 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]

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• 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.

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Express TermsDeciding whether a statement is a term

Oscar Chess Ltd v Williams [1957] 1 All ER 325 (R&G(C) [10.3C])

• 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 (who was familiar with this car) also thought 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.

• OCL claimed that the 1948 age was a condition of the contract. Alternatively, they claimed a collateral warranty to that effect.

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• 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 (remember factors from Ellul & Ellul v Oakes).

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“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.

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• 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.

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• 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.’

• The court said that the trial judge was too focused on whether the statement was essential and therefore a condition or warranty (two different types of contractual term - discussed in a later lecture), but did not focus on whether it was a term at all (as opposed to just a representation).

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*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.

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– The appellant was a car salesman and therefore that he should have taken the diligence to discover how far it had travelled or at least he should not have made a false representation if he did not know the exact distance. Denning agrees with the trial judge that the representation was not fraudulent; however, it was stated as a fact and was a warranty in the contract for the sale of the car. Therefore, breaching it gives rise to a cause of action for damages.

– The Court said that the inference was rebutted in Oscar Chess, but here it wasn’t.

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– 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).

– Additionally, in both of these cases, Denning LJ emphasised that the losing parties lost partly due to fault on their part:

• In Oscar Chess Ltd v Williams, he said that OCL should have checked the accuracy of Williams’s statement

• In Dick Bentley Productions, he said that Smith should have checked the truth of his statement before making it.

– But in Ellul & Ellul v Oakes, the court rejected the idea of fault and reasonableness being a factor in Australia

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Express TermsIncorporation of terms - signing a contract

• One of the most common ways in which written terms can be expressly incorporated into a contract is by signature.

• Signature will ordinarily bind a party to the terms even if the signatory has not read the document or understood the terms in the document.

– *L’estrange v F Graucob Ltd [1934] 2 KB 394

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*L’estrange v F Graucob Ltd [1934] 2 KB 394

• Ms L’Estrange, the proprietor of a cafe business, entered into a contract for the purchase of an automatic vending machine. She signed a document headed ‘sales agreement’ which stated that it contained ‘all the terms and conditions’ under which she had purchased the machine. The document also provided that ‘any express or implied condition, statement, or warranty, statutory or otherwise’ which was not stated in the document was excluded.

• Ms L’Estrange found the machine to be unsatisfactory and brought an action claiming the return of the money she had paid and damages for breach of a term, which she alleged was implied by the Sale of Goods Act 1893 (UK), requiring the machine to be fit for the purpose for which she purchased it.

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*L’estrange v F Graucob Ltd [1934] 2 KB 394

• However, the Divisional Court held that no such term could be implied as it was excluded by the document which she had signed.

• The document contained the terms of the contract even though it had not been read. The exclusion terms were in small print but legible.

• The position in L’Estrange v Graucob might have been different had the defendant misrepresented the effect of the document – See: Curtis

• Ordinarily, when an action is brought on a written agreement, which is signed by the defendant, the agreement is proved by proving his/her signature, and in the absence of fraud, it is immaterial that he/she has not read the agreement and does not know its contents

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Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C) [10.4C])

• 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?

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Held: 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.

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• 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 Lecture 8).

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• 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.

• But if the terms in the separate document are unusual, notice of those terms, may, depending upon the circumstances, be required for them to be incorporated into the contract.

– *Ange v First East Action Holdings Pty Ltd (2011) 284 ALR 638

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Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 (R&G(C) [10.4])

• Exceptions:

– Misrepresentation (Lecture 7) (and see Curtis)

– Mistake (Lecture 7)

– Duress (Lecture 7)

– Contracts Review Act 1980 (NSW) (Lecture 8)

– Undue influence (Lecture 8)

– Unconscionable conduct (including non est factum) (Lecture 8)

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Express TermsIncorporation of terms - signing a contract – the effect of misrepresentation

Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 (R&G(C) [10.5C])

• 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?

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• 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 [!!]

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• 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])

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Express TermsIncorporation of terms – tickets and notices

• Where no document is signed by the parties, the usual way by which terms are incorporated is by one of the parties giving the other notice of the terms of the contract. It is difficult to state the legal requirements here beyond saying that the notice must be ‘reasonable’. That is, the party relying on the terms must show that, in the circumstances, reasonable steps were taken to bring the terms to the attention of the other party.

• Unless a course of dealing is proved between the parties, the notice must be given prior to or contemporaneously with entry into the contract.

• The principle of the ‘ticket cases’ is that where one party makes an offer to contract on terms stated on or referred to in a document (usually no more than a ticket) given to the other party, that party’s decision to keep the document indicates assent to a contract on the terms stated or referred to

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Express TermsIncorporation of terms – tickets and notices

• 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

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Express TermsIncorporation of terms by reasonable notice - reasonableness

Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.6C])

• 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?

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• 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!

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• 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).

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• 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,

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Parker v South Eastern Railway Co (1877) 2 CPD 416 (R&G(C) [10.C6])

• Parker’s case suggests that in considering the application of the ticket cases there are, potentially, three questions to be asked:

1. Did the person who received the ticket know that there was writing on the ticket?

2. Did that person know that the ticket referred to terms?

3. Did the party relying on the terms do what was reasonable to bring notice of the existence of the terms sought to be incorporated to the other party’s attention?

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*Causer v Browne [1952] VLR 1 (R&G [10.47])

• 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

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Express TermsIncorporation of terms by reasonable notice - timing

Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7C])

• 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.’

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• 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?

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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.

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• 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 assumedIthat 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.’

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*Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] 2 QB 43 (R&G [10.51])

• The claimants ran a photo library, The defendant was in advertising. The claimants advanced some transparencies to the defendant for his perusal and he was to get back to them as to which photos he would like to use.

• The package (envelope) holding the photos contained a document stating that if any transparencies were kept longer than 14 days, a £5 +VAT holding fee would be charged per photo, per day. The defendant had not read this document and then forgot about the transparencies. He failed to return them for 6 weeks.

• The claimants brought an action claiming a holding fee of £23,783 based on the terms set out in the document.

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HELD Bingham LJ

• In this case, there was no contract when the defendants made their initial request on the telephone.

• Nor was there one on delivery of the bag.

• The contract was formed upon opening the bag. And the delivery note would clearly be seen to be the sort of document which contained terms. So long as they were of the usual sort, they could not claim they were not incorporated. The defendant was deemed to know that the document contained terms, so routine terms on the document were incorporated into the agreement.

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HELD Bingham LJ

• But not the charging clause – it ‘unreasonable and extortionate.’

• Defendant was liable for about 10% of the claimed amount.

• Cited Thornton v Shoe Lane Parking [1971] 2 QB 163 (R&G(C) [10.7])

‘Iif one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that particular condition was fairly brought to the attention of the other party.’

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HELD Bingham LJ

• Seems to suggest that ‘fairness’ is required. Does this mean good faith? Does this go beyond what is accepted in Australian courts?

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Express Terms

Incorporation on the basis of prior dealings

• A course of dealing occurs when the contract at issue between the parties is preceded by a series of transactions over time. Such a course of dealing may have the effect of incorporating terms into a contract. For example, an oral contract may contain implied terms incorporated by the course of dealing. It is now established that in order to rely on a course of dealing one party need not show that the other party had actual knowledge of the terms.

• This is ultimately a question of reasonableness It will often depend upon the number and consistency of past dealings. [See R&G 10.56]

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Express TermsIncorporation on the basis of prior dealings

• 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 aftera contract if formed (such as an invoice) 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 mean that it can be incorporated? (see [R&G 10.56 – 10.65]):

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• There have been competing authorities as to whether the terms in question had to have formed part of each of the previous agreements:

– Henry Kendall v William Lillico & Sons Ltd [1969] 2 AC 31

• Terms in a written document handed over after each contract was performed were incorporated in subsequent agreements – By continuing to conduct their business on the basis of the document, without objection to the term, they are taken to have assented to its incorporation.

– DJ Hill v Walter H Wright [1971] VR 749

• Terms in a written document handed over after each contract was performed were NOT incorporated into the latest contract. Even though the plaintiff knew of the document (but not its contents). The court sais that if the plaintiff knew that it was a contractual document (not just a document), he would have been bound. Distinguished Kendall v William Lillico by saying that in that case he did know it was a contractual document

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• DJ Hill v Walter H Wright [1971] VR 749

– But this decision has been criticised

– It was not followed inI.

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La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (R&G(C) [10.8C])

• La Rosa was an independent contractor who had carried out cartage work for Nudrill on a number of occasions. Nudrill usually engaged him for specific jobs by way of short telephone conversations (oral agreement).

• 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 of the agreement?

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HELD: NO.

• There is no single test for the incorporation of term based on private dealings.

• This is not a situation of implied a term by fact or by custom and usage.

• The question is: ‘Is the express term incorporated by an inference arising from the previous conduct of the parties as a whole?’

• 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.

• In prior dealing cases the test from ‘ticket cases’ is often used: ‘Did the party relying on the clause do what was reasonably sufficient to give the other party notice of the term?’

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• 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.

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• 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.

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Here the exclusion was not incorporated because of the following factors:

• The invoices were not a ‘contractual document’ Their purpose was to secure payment, not to provide terms

• Here there was a lack of proximity between some of the transactions (there was a six year gap).

• Other courses 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).

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‘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]

69

Express TermsIncorporation by reference

• In commercial contracts it is quite common for the parties to record the bare essentials of the contract in a document and for the document to refer to, and incorporate, a set of terms, such as the standard form of a trade association, the standard terms of one of the parties or the terms of another contract related to the transaction.

• This method of incorporation is not limited to commercial contracts. For example, the parties to a contract for the sale of land might incorporate the terms stated in a standard contract approved or issued by a body such as a law society or real estate institute. It is also employed in the context of insurance contracts.

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Express TermsParol Evidence Rule

• (parol = verbal expressions or words) (Discussed further in Week 6)

• 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.

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Express TermsThe 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 applicable partially oral/partially written agreements.

• Does the rule apply to threshold question of whether the contract is written or partly oral?

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*SRA v Heath Outdoor Ltd (1986) 7 NSWLR 170 (R&G(C) [10.9C])

• 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.

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• 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.

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“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 parolevidence rule could apply.”

75

Express TermsDeciding whether a statement forms part of a collateral contract

• 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?

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• 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 although the written lease was an entirely a written contract to which the parol evidence rule applied, 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.

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• What are the practical virtues of arguing that there is a collateral contract?

1. If the main contract is illegal, you may still be able to claim against the collateral contract is unenforceable.

2. If the main contract has to be in writing (such as land contract) the collateral contract may not need to be in writing

See: *Leipner v McLean (1909) 8 CLR 306, but cf: *Wright v Madden [1992] 1 Qd R 343

3. It may get around the need for privity: If A enters into a contract with C after on the basis of a promissory statement made to A by B, this statement may take effect as a contract between A and B which is collateral to the main contract between A and C. This gives A enforceable right against B.

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• 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.

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*Shepperd v Council for the Municipality of Ryde (1952) 85 CLR 1.

• Plaintiff purchased house from defendant. During pre-contractual discussions P was told (by reference to plans/brochures) that the land opposite the house would become a park. P made clear to D how important this was to them. A year after contractual completion D decided instead to sub-divide the land. P sought an injunction to stop them using the land from anything other than a park.

• The assurances in the council plan and brochure gave rise to a collateral contract between the parties. It was their intention that P should rely on these documents and he had done so. The reluctance of the courts to find a collateral contract where a statement in question could have been included in the main contract was displaced here because it was not unnatural for the parties to treat the contract as devoted only to the purchase of the land. The plaintiff's action succeeded.

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J J Savage and Sons v Blakney (1970) 119 CLR 435 (R&G(C) [10.10C])

• 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?

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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.

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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.

• Here, in the circumstances, the statement was only an opinion which, even though it was made with the calculation of Blakney entering in to the contract, and was a matter of considerable importance to him, nevertheless dis not constitute a collateral contract.

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Carter argues that the this case sets up three elements for a collateral contract:

(1) that the statement was intended to be relied on;

(2) reliance by the party alleging the existence of the contract; and

(3) an intention, on the part of the maker of the statement, to guarantee its truth.

How is this different to the definition in R&G? Are these parts of the first element in that test?

84

Express TermsCollateral contracts and the need for consistency

*Hoyt's v Spencer (1919) 27 CLR 133 (R&G(C) [10.11C])

• 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?

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• 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.

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• It has been argued that the effect of this rule can be circumvented if the principles of equitable estoppel are satisfied.

87

Implied TermsImplied terms

• In addition to express terms, sometimes the court will imply a term into a contract, when that contract does not expressly provide for what happens when some event occurs.

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Types of implied terms:

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.

• However there is not always a clear line between the types and they can merge to a certain degree.

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• In the case of terms implied in fact, the presumption is that the contract is effective without the term. Accordingly, the onus of proving that a term should be implied into the contract rests on the party so alleging.

• The onus is most difficult to discharge in detailed commercial contracts simply because the contract will look to state all the terms of the bargain.

• If the onus is discharged the term is deemed to have been implied from the time of contractual formation. The same approach is taken to terms implied by custom or usage.

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• Where the term in question is of the implied in law variety the onus of proof is different. Once the contract (or the obligations it creates) has been shown to be of a nature or kind in which there is a history of implication the term is presumed to be part of the contract. It is therefore up to the party who alleges that the term should not be implied to prove this.

• Where a term is implied by virtue of statute, there may be specific requirements for implication, and exclusion of the term by agreement may be prohibited.

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Implied TermsImplication 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: an agreement expressed in a document which is complete on its face

– Informal: oral agreements e.t.c. or which are not complete on their face

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:

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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.

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*Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127

(R&G(C) [11.2C])

• 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 factors, or 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

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*Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127

(R&G(C) [11.2C])

• But this is not the way that these considerations have been applied in Australia – they have been applied fairly strictly.

• And perhaps that is why in Australia, a distinction is drawn between the application of the test in formal and informal agreementsI

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Reasonable and equitable.

• Although it is not enough to say that it is reasonable to imply a term, any term that is implied, must operate reasonably and equitably between the parties.

• In Byrne v Australian Airlines (1995) 185 CLR 410, the court held that the proposed term, would act in a partisan fashion and so rejected it.

• Reasonableness and equity is to be judged by the reference to the benefits and burdens each party can expect to enjoy or undertake under the contract.

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Necessary to give business efficacy to the contract

*The Moorcock (1889) 14 PD 64

• The claimant moored his ship at the defendant's wharf on the river Thames. The river Thames is a tidal river and at times when the tide went out the ship would come into contact with the river bed. The ship became damaged due to uneven surfaces and rocks on the river bed. The claimant sought to claim damages from the defendant and the defendant argued that there was no provision in the contract warranting the condition of the river bed.

• Held:

The court implied a term in fact, that ‘the river bed would be safe for mooring’. The court introduced the business efficacy test i.e. the term must be necessary to give the contract business effect. If the contract makes business sense without the term, the courts will not imply a term.

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So obvious that it goes without saying.

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (R&G(C) [11.2C])

• Codelfa agreed to build a part of the Eastern Suburbs rail line. There was an agreement that Codelfa 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 as well.

• The work schedule was blocked in the Supreme Court of NSW by a nuisance action brought by locals against Codelfa: 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.

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• Arbitrator said ‘Yes:

‘..the principal would grant to the contractor a reasonable extension of time for the completion

of the works and would advise the contractor of the fact of the grant of the extension of time within a reasonable period after the issuing of the restraining orders and injunctions became known to the principal or ought to have become known to the principal.’

• Supreme Court also said ‘Yes’ but changed the term:“that the works, the subject of the contract, could be carried out by the contractor on a three-shift continuous basis six days per week and without restriction as to Sunday and that no injunction or other restraining order would or could be granted against the contractor in relation to noise or other nuisance arising out of the carrying out of the said works on such basis”

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• Court of Appeal said ‘Yes’ but changed the term again:

‘If the contractor is prevented from executing the works on the basis of a three shift continuous operation six days per week without restriction as to Sundays by the terms of an injunction granted to restrain any nuisance caused by the inherently noisy or disturbing nature of any work performed in accordance with the contract (including any requirements made by the engineer pursuant to cl. S. 8(2)(c) thereof), the Commissioner within a reasonable period thereafter shall grant and notify to the contractor a reasonable extension of time in respect of any delays in the completion of the works thereby occasioned, and shall indemnify the contractor against any additional costs or expenses thereby reasonably incurred’

• Codelfa went to the High Court of Australia to challenge the ‘no frustration ruling’ (we will look at this later). The SRA cross-appealed: it wanted to get rid of it the implied term.

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Business efficacy

• It is not enough that it is reasonable to imply a term. It must be necessaryto give business efficacy to the contract.

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Obviousness

• The court said that the question is - Would the parties have readily agreed on the proposed implied term if it had been suggested to them in the course of their negotiations? - This is sometimes called the ‘officious bystander test’

‘Iif while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common “Oh, of course!”’

– *Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206

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• 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 and does not deal with actual intentions, but presumed intentions.

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Here:

‘[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 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.’

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Capable of clear expression

• The proposed implied term must:

– be clear; and

– be capable of being formulated with sufficient precision.

• RG&C [11.22]

• Carter argues that it must:

– Capable of clear expression and

– Reasonably certain in its operation.

• Carter [11-10]

• Is there a difference?

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Consistency

• The proposed implied term must not:

– Contradict the express terms of the contract; and

– Deal with a matter already sufficiently dealt with by the contract.

• RG&C [11.24]

• What if there is an ‘entire agreement clause’?

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Implied Terms

Implication of terms on the facts of the case

Byrne v Australian Airlines (1995) 185 CLR 410 (R&G(C) [11.3C])

• The plaintiffs Byrne and Frew were baggage handlers and employees of the Defendant, Australian Airlines, and were fired for pilfering.

• The Plaintiffs sued to the AA for breach of the award (clause 11(a) of the Transport Workers (Airlines) Award 1988) which specified that termination of an employment should not be harsh unjust or unreasonable. They said that in firing them, AA did not provide procedural fairness and therefore breached 11(a).

• Under the award, if the employer breached, it had to pay a financial penalty. And the plaintiffs wanted this paid to them. But under contract they could ask for damages, which may have been more, so they wanted to show the employer had breached contract (the award).

• So they sued for breach of award, breach of statutory duty and breach of contract

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Implied Terms



• The High Court referred to the factors in *BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, as conditions.

• McHugh & Gummow JJ held:

– A different test applies to informal contracts:

• Where the contract is not in writing and is oral or partly oral, the question is whether the implication of the particular terms is necessary for the reasonable or effective operation of the contract in the circumstances of the case.

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Implied Terms



• Similarly, Brennan J held that in informal agreements the court should imply a term by reference intention of the parties, but only if:

‘it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.’

• It appears that on analysing this, the court will still need to consider the factors in *BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.

• For example, McHugh & Gummow JJ said that it is still necessary to show that the terms was obvious.

109

Implied Terms



• Does that mean in Australia the test is very similar, but the five factors are applied more strictly in the case of formal contracts?

110

Implied Terms



• The term here was not at all so obvious that it goes without saying, or necessary for the operation of the contract. It therefore cannot be implied in fact.

• In the case of the employees it was not reasonable because even if the parties had got around to discussing it, they wouldn’t have agreed.

• Its also not necessary for the effective operation of the contract because the common law already governs the reasons for why an employer can terminate employment

• Also, the objective background is admissible in order to ascertain whether it is necessary to give business efficacy to a contract.

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Implied TermsImplication of terms by law

• Where a term is implied as a matter of law, rather than because of the factual circumstances of the case, it is usually implied because of the nature of the contract itself: because the same term has been implied in contracts of this nature in the past. Usually the contract is a very informal type, often with no written terms at all. However, because the terms are in the nature of default rules, applicable because the parties have not agreed otherwise, existence of writing does not of itself preclude an implication by the court.

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• Although the implication of any term is a question of law for the court, there are two quite significant distinctions between factual and legal implication.

– First, there is a difference in the onus of proof. Where a term is implied in fact the onus is on the party alleging the implication. The onus is on the other party when the term is implied in law, assuming that, in the past, the term has been implied into the type of contract before the court.

– Second, there are important differences in the factors relevant to implication. In particular, ‘reasonableness’ is more important to legal implication and a term may be implied by law, on the ground that it is reasonable to do so, even though the ‘business efficacy’ and ‘obviousness’ criteria of terms implied in fact are not satisfied. It is also the case that a term may be implied in law even though it lacks the necessary precision of a term implied in fact.

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• To decide whether a term is implied in law it is necessary to classify the contract.

• By way of illustration, reference can be made to terms usually implied in employment contracts, bailment contracts and contracts for work and materials:

– Where an employment contract exists the court will, in the absence of express exclusion (or the imposition of a more onerous duty), imply a term requiring the employee to exercise ‘proper or reasonable care’ in the discharge of duties under the contract.

– Where the contract is for the provision of services by a professional person, such as a solicitor, insurance broker or engineer, the term will require the exercise of the degree of care expected of a person in the profession, trade or industry possessing the particular special skill.

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• To decide whether a term is implied in law it is necessary to classify the contract.

– A bailment contract imposes on the bailee an obligation not to convert the bailor’s goods and to exercise reasonable care.

– Where a contract involves the execution of work and the supply of materials, such as in the building of a house, the law implies terms requiring the contractor to use reasonable care in doing the work and to supply materials which are of ‘good quality’ and ‘reasonably fit for the purpose’ for which they are supplied.

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*Liverpool City Council v Irwin [1977] AC 239

• The LCC owned a large block of flats and they brought action against some tenants for possession for non payment of rent. The tenants claimed that the LCC was in breach of its duty to repair and maintain. There was no formal lease to govern the arrangement, just a document called "conditions of tenancy" which was signed by the tenants, but not the LCC. This document listed the duties of the tenants but said nothing about the duties of the LCC.

HELD Lord Wilberforce

• It is not uncommon in Council lettings for there to be no formal lease -given that this document states only the obligations of the tenant, we have an agreement which is only partly in writing

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• To complete its bilateral character, it is necessary to take into account the actions of the parties and the circumstances - the actions such as the landlord giving possession and reserving the common parts - stairs, lifts, etc. We also take into account the circumstances such as the type of premises - in this case a maisonette on the 9th floor with there being many other tenants dependent upon them and none of them having obligations to maintain or repair the common parts.

• To construct the complete contract from these elements requires "implications" - the supplying of what is not expressed. Not all implications are the same. Sometimes there may be a completed bilateral contract where the courts add terms as implied terms - in mercantile contracts where there is an established usage - the courts spell out what the parties know and would if asked have agreed to.

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• Sometimes the court will add to the completed contract a term without which the contract will not work - The Moorcock. This is a strict test which may vary from time to time. Another variety of implication is that of reasonable terms - but the principle expressed by Lord Denning in the Court of Appeal goes beyond sound authority. In this case we have a fourth type or shade on the spectrum. Here the court is trying to establish what the contract is where the parties have not stated it.

• Presumably there must be implied a letting of the premises with a right of exclusive possession and a covenant of quiet enjoyment. With this lease it is useless unless there is access to the common staircase and given the height of the block a lift service and the right to use the rubbish chutes. There must be implied easements to use the stairs, lifts and chutes.

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Liverpool City Council v Irwin [1977] AC 239

• The LCC argued that such easement brings with it only the obligations under the Occupiers Liability Act 1957 - re the safety of those using the facilities and liability in tort. The alternative is for some easement with some maintenance obligation. ‘I do not find it difficult to define the test to be applied - no more than the nature of the contract requires - the matter is one of necessity. These facilities are essential to life in the dwellings.’

• The standard must be that of necessity. An absolute obligation would go beyond what is necessary and would be unreasonable - reasonable care to keep in reasonable repair fits the requirements of the case. This recognises that the tenants have their responsibility - what is reasonable to expect of the landlord depends on what the tenants should do for themselves.

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*Scally v Southern Health and Social Services Board [1992] 1 AC 294

• Dr Scally and three other doctors were employees of the Southern Health and Social Services Board in Northern Ireland. They had not worked the requisite 40 years before retirement to get full superannuation (or pension) benefits. But by lawthey could "top up" their payments within twelve months of beginning their jobs and get the full entitlements. Their employer did not tell them this. So they failed to get better rates.

• The plaintiffs argued a ‘necessary’ term of employment was information about exercising rights under the superannuation scheme.

• The contracts of employment conferred a valuable right on the employees which however was contingent on them taking certain action. The terms of the contract had not been negotiated with individual employees but with a representative body or otherwise were incorporated by reference. The employee could not reasonably be expected to be aware of the term unless it was drawn to his attention.

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• There was an implied term in each of the plaintiffs' contracts of employment that these rights should be explained to the employee and the Boards were in each case in breach. There were no breaches of statutory duty.

• The Court found that it was "not merely reasonable, but necessary, in the circumstances postulated, to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee's attention, so that he may be in a position to enjoy its benefit.“

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• The Court in Scally noted the limitations on its decision. The circumstances in which the implication will arise were defined with precision:

(1) the terms of the contract must not have been negotiated with the individual employee but result from negotiation with a representative body or otherwise be incorporated by reference;

(2) a particular term of the contract must make available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; and

(3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention.

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Implied Terms

Implication of terms by law


• For a term to be implied in law, it must be:

– Applicable to a defined category of contracts

– Suitable in a way which allow it to be implied in all contracts in that category.

• The test of necessity is often used - a term can only be implied if its omission would entail that the rights of the parties under the contract were significantly diminished.

• No necessity here, and therefore no implied term.

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Implied Terms


*Commonwealth Bank of Australia v Barker [2014] HCA 32 (R&G(C) [11.4C])

• Mr Barker commenced employment with CBA in 1981. During his employment, he progressed to the position of bank manager. In 2009, his position was made redundant. His access to work emails and IT systems was cut off. CBA sent emails as to possible redeployment options, but Mr Barker could not access them until after the deadline for applications.

• Barker sued CBA on the basis that they had breached the implied term of mutual trust and confidence. At the first instance, the Federal Court found in favour of Barker. CBA appealed to the Full Federal Court, which found in favour of Barker 2 to 1. CBA appealed.

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• The question in the appeal was whether employment contracts contain a term of mutual trust and confidence implied by law that ‘the parties will not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of trust and confidence between them.’

• Allowing the appeal, the Court held that the proposed term was not necessary in the sense that would justify implying it by law into all employment contracts.

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• The court held that there was no such implied term in Australia. The main judgment held that the history of the development of the term in the United Kingdom is not applicable to Australia and concluded that the complex policy considerations mean that it was a matter which was more appropriate for the Parliament than for the courts to determine.

• Justice Kiefel also placed reliance on the statutory unfair dismissal regime and also considered that an obligation to redeploy Mr Barker would be inconsistent with the express term of the contract providing for notice of termination.

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• Justice Gaegler agreed with the joint judgement – commenting on the vague nature of the implied term and its intrusion into an area of law extensively regulated by statute, most notably, the unfair dismissal laws.

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Implied Terms


• Many terms are implied by statute. Some of these implications were once implied by the common law .

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Implied TermsImplication of terms by law - statute

Sale of Goods Act (1923), ss 17 – 19

Section 17 Implied undertaking as to title etc

In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is:

(1) an implied condition on the part of the seller that in the case of a sale the seller has a right to sell the goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time when the property is to pass,

(2) an implied warranty that the buyer shall have and enjoy quiet possession of the goods,

(3) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made.

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Section 18 - Sale by description

Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale be by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

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Section 19 - Implied condition as to quality or fitness

Subject to the provisions of this Act, and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

(1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.

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Section 19 - Implied condition as to quality or fitness

(2) Where goods are bought by description from a seller who deals in goods of that description (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed.

(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.

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Implied Terms

Implication of terms by custom or usage

• A term may be implied on to a contract to incorporate a relevant custom in a particular market, trade or locality.

• The phrase ‘custom or usage’ includes established mercantile usage or professional practice.

• The parties are regarded as having contracted on the basis of any custom or usage applicable and the term is implied in accordance with the custom or usage. For a term to be implied the custom or usage must be proved to be ‘notorious, certain, legal and reasonable’.

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Implied Terms


• For example, in Sagar v H Ridehalgh & Son Ltd the defendants, who employed the plaintiff as a weaver, made deductions from the plaintiff ’s wages in respect of cloth which had not been properly woven. A usage in the Lancashire region, where the plaintiff worked, was established which justified the deduction. The fact that some mill-owners in the region did not make deductions did not prevent the usage being applied because there was evidence that over 85 per cent of the mills in the county made such deductions.

.

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Implied Terms


Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance

(Australia) Ltd (1986) 160 CLR 226 (R&G(C) [11.5C])

• Con-Stan Industries of Australia Pty Ltd engaged an insurance broker to select insurance for various risks. Norwich was selected by the broker as the appropriate insurer. Norwich agreed to insure Con-Stan. Con-Stan paid insurance premiums to the broker who did not pay them to Norwich.

• The broker then went into liquidation and Norwich sued Con-Stan for the unpaid premiums. Con-Stan argued that there was an implied term in the insurance contract that it was only required to pay the premiums to the broker, and that paying the broker discharged the debt for payment of the insurance premiums.

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Implied Terms




• Did the usual business custom for the payment of insurance premiums imply that there would be a contractual term that brokers were liable for the payment of the premiums to the insurer?

• Did business efficacy imply a term in the contract that the payment of premiums was to be made by brokers and not the insured?

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Implied TermsImplication of terms by custom or usage



Held:

• There was no implied term in the contract, arising by virtue of custom or usage in the insurance industry, that the broker alone was liable for payment of premiums or that payment of the premiums to a broker discharged the insured’s obligation to the insurer. The custom relied on was not so well known and accepted by everyone making insurance contracts.

• There was no implied term to satisfy business efficacy as the alleged implied term was not obvious to the parties and it was not clear that both parties would have accepted that the implied term should be included in the contract.

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Implied Terms




Gibbs CJ, Mason, Wilson, Brennan & Dawson JJ held:

“In order to establish a custom to the effect that a broker is alone liable to an insurer for payment of a premium on a policy of insurance, it is not sufficient to show that in the ordinary course of events the premium is paid to the insurer by the broker, nor is it sufficient to show that where a broker has failed to pay a premium the insurer makes its first demand for payment from the broker. Both circumstances are consistent with the continued liability of the assured. It is necessary to establish a clear course of conduct under which insurers do not

look to the assured for payment of the premium. This may be established by

proving either an absence of claims by insurers against insured or the existence

of claims directed exclusively to brokers as a practice rarely if ever departed

from.” - page 486 of 64 ALR 481

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Implied Terms




• The High Court, set out the following propositions in relation to terms implied by custom:

1. The existence of a custom or usage that will justify the implication of a

term into a contract is a question of fact.

2. There must be evidence that the custom relied on is so well known and

acquiesced in that everyone making a contract in that situation can

reasonably be presumed to have imported that term into the contract ...

However, it is not necessary that the custom be universally accepted, for

such a requirement would always be defeated by the denial by one litigant

of the very matter that the other party seeks to prove in the proceedings.

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Implied Terms



(Australia) Ltd (1986) 160 CLR226 (R&G(C) [11.5C])

3. A term will not be implied into a contract on the basis of custom where it

is contrary to the express terms of the agreement.

4. A person may be bound by a custom notwithstanding the fact that he had

no knowledge of it.

.

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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).

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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?

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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.

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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.

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Next weekI..

Lecture 6The Meaning of Terms

• Radan & Gooley, Chapter 12

• Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 33 (R&G(C) [12.2])

The Construction of Exclusion Clauses


• Darlington Futures v Delco Australia (1986) 161 CLR 500 (R&G(C) [13.2])

• *Alderslade v Hendon Laundry Ltd [1945] KB 189 (R&G(C) [13.3])

• *White v John Warwick & Co [1953] 2 All ER 1021 (R&G(C) [13.4])

• Sydney City Council v West (1965) 114 CLR 481 (R&G(C) [13.5])

• Competition and Consumer Act 2010 (Cth) Sch 2 ss 64 and 64A

Privity of Contract


• Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460

• Trident General Insurance Co v McNiece Bros (1988) 165 CLR 107

• New Zealand Shipping Co v A M Satterthwaite and Co (The Eurymedon) [1975] AC 154

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