Determining What Is in a Contract

Determining What Is in a Contract

¨       Terms of the Contract

–        Aim

•          To figure out what is in the contract

•          What have the parties agreed to do?

What Are the Contents of the Contract Called?

¨       Answer: terms

¨       Why do we have to determine the terms of a contract?

–        -because a breach of the terms of a contract will allow an innocent party to bring an action, to obtain a remedy

                However, before an innocent party can bring an action for breach of contract it must be determined what the parties to the contract agreed to do

1. Issue: Is a Statement a Term or a Representation?

¨       Issue – whether a statement is a term of the contract

¨       Term: a term is a contractual statement the truth of which is guaranteed. If a term is breached then the remedy is for breach of contract.

¨       Representation: a representation is a pre-contractual statement. If a representation is untrue then the remedy is for misrepresentation (see previous lecture slides).

How Does the Court Distinguish Between a Term and a Representation?

¨       The general test is: what were the parties intentions.

¨       As always, this is an objective test

Factors That the Court Will Look at to Determine Intention.

¨       1. The timing of the statement, i.e. the closer the statement was made to the contract being formed the more likely it is to be a term.

E.g. Van den Esschert v Chappell [1960] WAR 114

¨       2. How important was the statement to the parties?

E.g. Couchman v Hill [1947] KB 554

¨       3. Was the contract reduced into writing after the statement was made? If so, then it is less likely to be part of the contract. (parol evidence rule: where the parties have recorded their agreement in a signed document that appears to represent the entire contract no external evidence is allowed to vary or contradict the terms of the written contract)

¨       4. Did the person making the statement have special skills or knowledge? If so, then more likely to be a part of the contract

E.g. Oscar Chess Ltd v Williams [1957] 1 All ER 325

Compare with Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623

3. how are terms classified?

¨       Issue – whether a term is a condition, warranty or innominate term

¨       Condition: a contractual stipulation that is so important that a breach of the term will allow termination of the contract and/or damages

¨       Warranty: a contractual stipulation the breach of which will only result in the award of damages

How Does a Court Distinguish Between a Condition and a Warranty?

¨       Test: would the plaintiff have entered into the contract if he or she could not be assured of a strict or at least substantial compliance with the terms of the contract

¨       Associated Newspapers v Bancks (1951) 83 CLR 322

What Is an Innominate Term?

¨       A term that is capable of both a major or a minor breach

¨       If the term is breached in a major way then it will be treated as a condition with the remedies for breach of a condition being available

Innominate Term

¨       If it is breached in a minor way then it will be treated as a warranty with the remedies for a breach of warranty being available

–        E.g. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 All ER 474

4. Express and Implied Terms

¨       i. Express term – a term that the parties have expressly stated to be a part of the contract whether in writing or orally

¨       The only issue with an express term is how to interpret it

IMPLIED TERMS

¨       Implied terms are terms the court includes in contracts about matters that the parties do not consider at the time of contract.

¨       Terms implied in Fact (in one contract)

¨       Terms implied in Law (2 types):

1. Generic (of a specific class) or;
2. Universally implied terms

¨       Terms implied by custom or trade usage

5. Exemption Clauses

¨       Issue – whether an exemption clause is part of the contract

¨       Definitions

–        Exemption Clause – a collective term for exclusion and limitation clauses

•          Exclusion clause – clauses that deny any liability, e.g. car park ticket

•          Limitation clauses – whilst they do not deny liability they restrict liability, e.g. airline ticket

The Issues for Exemption Clauses

¨       1. Has the exemption clause become a term of the contract?

¨       2. If the exemption clause has become a part of the contract does it cover the particular situation that has arisen?

¨       N.b. you must answer both questions

1. Has the exemption clause become a term of the contract?

¨       Two Situations Must Be Looked At

–        i. Those situations in which the document containing the exemption clause has been signed

–        ii. Those situations in which the document containing the exemption clause has not been signed

Situation 1

¨       General rule – a person who has signed a document containing an exemption clause is automatically taken to have read that document even if he or she has not.

                L’Estrange v Graucob [1934] All ER 16

Exceptions

¨       1. Fraud

¨       2. Misrepresentation,

–        e.g. Curtis v Chemical Cleaning & Dying Co [1951] 1 KB 805

¨       3. The document was signed after the contract was made.

¨       4. The document signed was not contractual in nature

Hill & Co Pty Ltd v Wright Pty Ltd [1971] VR 749

Situation 2.

¨       To incorporate a term into a contract where the document containing the term has not been signed then reasonable notice of the term must be given.

¨       Thornton v Shoe Lane Parking Ltd [1973]

¨       These are the factors that the court will take into consideration in deciding whether reasonable notice has been given of an exemption clause

1. The Nature of the Document

¨       Was the document contractual in nature

–        Causer v Browne [1952] VLR 1

2. The Reasonableness of Notice

¨       Oceanic Sun Line Special Shipping Co v Fay (1988) 165 CLR 197

¨       In its brochure Oceanic stated “the carrier contracts on its usual conditions of carriage”

¨       Conditions themselves were not available for inspection.

¨       Court said, “literature that contain exemption clauses that appear to have no contractual effect will not form part of a subsequent contract”

¨       Reasonable notice involves a party providing the actual text of the limiting terms be made available. It is not enough that they be available upon request.

3. The Timing of the Notice

¨       Olley v Marlborough Court [1949] 1 All ER 127

4. Prior Course of Dealing

¨       Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379

¨       “A fare of one penny must be paid on entering or leaving the wharf. No exception will be made to this rule whether the passenger has travelled by ferry or not”

2^nd Step: Applying the Exemption Clause

¨       Once it has been decided that the exemption clause is part of the contract, the next step is;

–        To determine whether the exemption clause covers the situation that has arisen

¨       This is a question of interpreting the exemption clause, that is all.

                Council of City of Sydney v West (1965) 114 CLR 481

Does the clause cover the breach?

¨       “A court will construe the clause according to its natural & ordinary meaning, read in light of the contract as a whole. Therefore, attention is paid to the context in which the clause appears, including the nature and object of the contract” – Darlington Futures Ltd v Delco Australian Pty Ltd (1986) CLR 500 at 510

Approaches to Interpretation

¨       Contra proferentem rule – if an exemption clause is ambiguous it will be interpreted in the least favourable way to the person relying on the clause.

Alex Kay Pty Ltd v General Motors Acceptance Corp and Hartford Fire Insurance Co [1963] VR 458

The ‘Four Corners’ Rule

¨       ‘if you undertake to do a thing in a certain way, or to keep a thing in a certain place, with certain conditions protecting it, and have broken the contract by not doing the thing contracted for in the way contracted for, or not keeping the article in the place in which you promised to keep it, you cannot rely on conditions intended to protect you only if you carried out the contract in the way contracted for’

Lord Scrutton in Gibaud v Great Eastern Railway Company [1921] 2 KB 426

¨       This basically means that an exemption clause will not be upheld where some event or breach that is wholly outside the contracting parties contemplation occurs.

¨       The question is, “does this clause, by its words, cover this event or cause of action?”

The Council of the City of Sydney v West (1965) 114 CLR 481

¨       Exemption clause read “The council does not accept any responsibility for the loss or damage to any vehicle…however such loss…may arise or be caused”

¨       The car park attendant allowed the thief to steal car.

¨       Court held the release of the car to the thief was an event that (at the time of contract) was outside the contracting parties contemplation.

Deviation

¨       Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353

Does it matter that the clause appears unfair, ‘harsh’ or unreasonable?

¨       “It is not for the courts to say that parties cannot contract out their rights or obligations or put new limits on their powers to do so. The question for a court is only have they done so and that is determined by a consideration of construction..... but a clause that exonerates a party from any and all responsibility cannot possibly be taken literally. The problem is to determine the extent of the protection provided.” 

¨       ” – Thomas National Transport Ltd v May & Baker Ltd (1966)