2. Contents Flashcards
What’s the main area of difficulty when looking at express terms?
Small print
In what 4 ways can terms be incorporated into a contract?
- Signature
- Reasonable notice before or at the time of the contract
- A previous consistent course of dealing
- The parties’ trade practice
What happens when you sign a contract?
You are bound by the contract, even if you haven’t read all the terms and conditions
What factors are taken into account in deciding whether, or not, reasonable notice has been given (when a contract has not been signed, for example at the point of sale)?
- Nature of the document - is the document one on which a reasonable person would expect there to be contract terms? E.g. a term on the back of a ticket that someone was given after paying for the hire of a deckchair was held not to be a term of the contract
- Timing - the notice must come before or at the time of the contract (e.g. on an invoice)
- Onerous terms (e.g. a term imposing a substantial fine). The more onerous, the more the party must do to bring it to attention
- The exemption clause must be legible
- If the term is on the back, there must be attention to it on the front of the document (e.g. see terms overleaf)
What does it mean for terms to be incorporated in a contract by virtue of a previous consistent course of dealing?
Parties must have had a lot of regular dealings that were all on exactly the same terms and conditions
What are ‘conditions’ and ‘warranties’?
Conditions are important terms, warranties are minor terms.
Terms may be specifically identified as conditions or warranties or otherwise a contract may specify what will be the consequences of breach
What does the term ‘prima facie’ mean?
Having enough evidence to proceed to trial or judgment
What has to happen for the innocent party to terminate future performance of a contract?
If conditions are breached prima facie.
Even if the breach happens to be fairly insignificant the point is that an important term has been breached and for this alone the non-defaulting party has a choice whether the terminate or affirm the contract
What can happen if warranties are breached in a contract?
The only remedy is damages, however serious the breach
What case created the concept of innominate/intermediate terms?
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB (CA). The particular term in question was a ‘seaworthiness’ clause in a contract for the hire of a ship. Such a clause may be breached in a spectrum of different ways. So rather than classify such clauses at the outset the Court of Appeal introduced a ‘wait and see’ approach. In other words, the remedy would depend on the ultimate effect of the breach
What are innominate or intermediate terms?
Terms that are in between a warranty and a condition. A term becomes this if it can’t be shown to be either a warranty or a condition
Which terms can lead to damages for breach of a contract?
Warranties, innominate terms or conditions
Which terms can lead to termination of a contract?
Conditions and, in some circumstances, innominate terms
What is an express term?
A term that has been expressly agreed upon between the parties, doesn’t have to be written down
What is an implied term?
Implied terms are terms implied into commercial contracts by the courts because the term hasn’t been expressly included by the parties. This may be because the parties did not consider it, did not think that the issue would arise or simply omitted to include the term
When do terms get implied into contracts?
- Implied by custom
- Implied in fact
- Implied in law
- Implied by statute
Where 1-3 are terms applied at common law and technically, 4 is a sub-category of 3.
When may a term be implied by custom?
If it reflects what are regarded as the well-known and legally binding customs of a particular trade
When may a term not be implied by custom?
If it would contradict an express term of the contract
When is a term implied by fact?
When a term is not expressly agreed upon but the contract would not be workable without the relevant term
When is a term implied by law?
When the law regards it as a necessary incident of a particular type of contract (e.g. in an employment contract there is an implied duty on the employer to provide a safe environment for the employee to work in)
What’s the most important way in which terms get implied into contracts?
Terms implied by statute
What statute is relevant for terms implied by statute into business-to-business contracts for the sale of goods?
SGA 1979
What is s 13(1) of the SGA 1979? Why is it important?
Important for terms implied by statute to contracts (business to business).
Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description
What is s 14(2) of the SGA 1979? Why is it important?
Important for terms implied by statute to contracts (business to business).
Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality
What is s 14(2A) of the SGA 1979? Why is it important?
Important for terms implied by statute to contracts (business to business).
…goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all other relevant circumstances
What is s 14(3) of the SGA 1979? Why is it important?
Important for terms implied by statute to contracts (business to business).
Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller…any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgement of the seller…
Are ss 13 and 14 of the SGA 1979 considered warranties or conditions?
Conditions
What bars are there to a buyer rejecting the goods bought?
- Where the buyer has accepted the goods (e.g. he has intimated acceptance or otherwise kept the goods beyond a reasonable time without seeking to reject them); or
- Where the breach is so slight that it would be unreasonable to reject the goods
What does strict liability mean?
Means that the seller need not personally be at fault for the goods not matching their description or otherwise being defective. The point is that for some reason the goods do not comply with one, or other, of the terms implied by the SGA 1979. The actual reason why is irrelevant
As well as contracts for the sale of goods there are 2 other main types of contract. What are they?
- Contracts for a service/work
2. Contracts that involve both the supply of work and materials (goods)
What statute is relevant for terms implied by statute into business-to-business contracts for both service/work/goods and for the supply of work and goods?
Sale of Goods and Services Act (1982)
What is s 3 of the SGSA 1979? Why is it important?
Important for terms implied by statute to contracts.
Where there is a supply of goods by description there is an implied term that the goods will correspond with that description
What type of business-to-business contract is SGSA 1982 s 3 important for? Is the term a condition or innominate term?
Work and materials; condition
What is 4(2) of the SGSA 1982? Why is it important?
Important for terms implied by statute to contracts.
Where goods are supplied in the course of a business, it is an implied term that the goods will be of satisfactory quality
What type of business-to-business contract is SGSA 1982 s 4(2) important for? Is the term a condition or innominate term?
Work and materials; condition
What is 4(5) of the SGSA 1982? Why is it important?
Important for terms implied by statute to contracts.
Where goods are supplied in the course of a business, and the buyer makes known to the supplier his purpose for the goods (either expressly or impliedly) and reasonably relies on the supplier’s skill/knowledge, there is an implied term that the goods will be fit for that purpose
What type of business-to-business contract is SGSA 1982 s 4(5) important for? Is the term a condition or innominate term?
Work and materials; condition
What is 13 of the SGSA 1982? Why is it important?
Important for terms implied by statute to contracts.
Where work or a service is done in the course of a business there is an implied term that it will be carried out with reasonable care and skill
What type of business-to-business contract is SGSA 1982 s 13 important for? Is the term a condition or innominate term?
Work and materials and service contracts; innominate
What is 14 of the SGSA 1982? Why is it important?
Important for terms implied by statute to contracts.
Where work or a service is done in the course of a business and no time for performance has been agreed, it is implied that the work will be done within a reasonable time
What type of business-to-business contract is SGSA 1982 s 14 important for? Is the term a condition or innominate term?
Work and materials and service contracts; innominate
What is 15 of the SGSA 1982? Why is it important?
Important for terms implied by statute to contracts.
If a price for work or a service has not been fixed, there is an implied term that a reasonable sum will be charged
What type of business-to-business contract is SGSA 1982 s 15 important for? Is the term a condition or innominate term?
Work and materials and service contracts; innominate
What statute is relevant for terms implied by statute into business-to-consumer contracts for the sale of goods and supply of goods and services?
Consumer Rights Act (CRA) 2015
What is s 9 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for the sale of goods).
Where goods are sold/supplied in the course of a business, there is an implied term that the goods will be or satisfactory quality
Sale of goods; supply of goods under a goods and services contract
What is s 10 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for the sale of goods).
Where goods are sold/supplied in the course of a business, and the buyer makes known to the seller his purpose for the goods (either expressly or impliedly) and reasonably relies on the seller’s skill/knowledge, there is an implied term that the goods will be fit for that purpose
Sale of goods; supply of goods under a goods and services contract
What is s 11 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for the sale of goods).
Where there is a sale/supply by description there is an implied term that the goods will correspond with that description
Sale of goods; supply of goods under a goods and services contract
What is s 49 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for services).
Where work or a service is done in the course of a business there is an implied term that it will be carried out with reasonable care and skill
Goods and services and service contracts
What is s 51 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for services).
If a price for work or a service has not been fixed, there is an implied term that a reasonable sum will be charged
Goods and services and service contracts
What is s 52 of the CRA 2015? Why is it important? What type of business-to-consumer contract is it important for?
Important for terms implied by statute to contracts (for services).
Where work or a service is done in the course of a business and no time for performance has been arranged, it is implied that the work will be done within a reasonable time
Goods and services and service contracts
What do ss 20 and 22 of the CRA 2015 state?
That the consumer has the short-term right to reject and get a full refund
What does s 23 of the CRA 2015 state?
That the consumer has the right to repair or replacement (if appropriate)
What do ss 20 and 24 of the CRA 2015 state?
That the consumer has the right to a price reduction of the final right to reject and get a partial refund to reflect the consumer’s use of the goods
What is the ‘pecking order’ of remedies for consumer’s rights to enforce terms about goods?
ss 20 and 22, s 23 and finally, ss 20 and 24
Which subsection of CRA 2015 covers consumers’ rights to enforce terms about goods?
s 19
Do the rights set out in s 19 of the CRA 2015 affect a consumer’s common law right to claim damages (concerning goods)?
No - if the remedies set out do not fully compensate the buyer for losses suffered as a result of the breach damages may be awarded too
What is the time limit for the short-term right to reject non-perishable goods? What about perishable goods? What about the other rights?
If not otherwise stated, 30 days after they have been bought, delivered and, where appropriate, installed.
For perishable goods, the time limit is no longer than the goods could reasonably be expected to last.
For the other rights, if goods do not conform to the contract at any time within 6 months of the date of delivery, they will be taken as not having conformed to the contract on that day (unless proven otherwise, which is difficult)
What are consumers’ rights to enforce terms about services/work?
s 54 of the CRA 2015 provides that where a service/work does not conform to the contract because of either breach of an express term relating to the performance of the service/work or breach of the implied term to exercise reasonable care and skill (s 49), the consumer has the right to require repeat performance (where reasonable) or to a price reduction.
In relation to a breach of the implied term as to performance within a reasonable time (s 52), the consumer simply has the right to an appropriate price reduction
What has evolved to protect buyers from unfair contract terms (i.e. exemption clauses hiding clauses that limit liability in small print)?
Common law rules and statute
What 2 tests have developed from common law relating to exemption clauses?
Incorporation and construction
How does the incorporation test protect buyers from exemption clauses?
It determines whether an exemption clause truly is part of the contract between the parties. It looks at signature, reasonable notice and previous consistent course of dealing
How does the construction test protect buyers from exemption clauses?
It relates to the meaning, or construction, of the exemption clause and asks ‘Does the clause exempt liability for the particular breach and loss suffered?’
For example, a notice in a car park that reads ‘Cars parked at owners risk’ only purports to exclude liability for damage caused to cars: it will not exempt the supermarket from being liable from personal injury or other loss/damage caused by the negligence of one of its employees.
What happens if there is any ambiguity or uncertainty about the meaning of an exemption clause?
The courts will apply the rule of construction known as the ‘contra proferentem rule’. I.e. the clause will be construed against the person seeking to rely on it.
I.e. the defendant has contractually undertaken an obligation, and it is only fair that they should be liable for the performance of that obligation unless the contract clearly and unambiguously states otherwise
What are the two main statutes that govern limitation and exclusion clauses? What contracts do they govern?
Unfair Contract Terms Act (UCTA) 1977, which governs exemption clauses in business-to-business contracts (UCTA 1977 s 1(3))
CRA 2015, which governs exemption clauses in business-to-consumer contracts
What 3 results occur as a result of applying UCTA?
- It prevents the defendant from excluding or restricting their liability by reference to the term (e.g. in relation to death/personal injury caused by negligence (UCTA 1977, s 2(1)))
- It has no effect on the term, and so the defendant can rely on the term (e.g. a clause in a freely negotiated contract that exempts liability for breach of an express term
- Where one party contracts on the other party’s ‘written standard terms of business’. UCTA 1977, s 3 subjects the term to a ‘requirement of reasonableness’. This means that the defendant can rely on the term if it satisfies this requirement. If it doesn’t, UCTA 1977 will prevent the defendant from excluding or restricting their liability by reference to it
What do UCTA 1977 ss 6 and 7 concern?
Breach of the statutory implied terms relating to goods (non-consumer) - description, quality and fitness for purpose (s 6 applies to sale of goods contracts and s 7 applies to goods supplied under a work and materials contract)
What do UCTA 1977 ss 2(1) and 2(2) concern?
UCTA 1977 s 2(2): Loss or damage (other than death and personal injury) caused by negligence (including breach of the term implied by SGSA 1982, s 13) is invalid unless it satisfies the test of reasonableness in 11(1). s 2(1): a clause excluding or limiting liability for negligently causing death/personal injury is invalid
What does UCTA s 3 concern?
Providing that the claimant is dealing on the defendant’s written standard terms of business, exclusion or limitation of liability for breach of a strict/express term is invalid unless it satisfies the test of reasonableness
Assuming the breach of contract is a negligent breach (e.g. breach of term implied by s 13 SGSA 1982), which section of UCTA applies and what is the effect of that section on the exception clause?
Assuming that the exemption clause is incorporated as a term of the contract AND the wording covers the breach and loss that occurred:
s 2 UCTA 1977 applies. If it is a death/personal injury case, then s 2(1) applies and the exemption clause is void. If it is a loss/damage case, then s 2(2) applies and the exemption clause is valid if reasonable
If there is a breach of terms implied by ss 13 and 14 of the SGA 1979 or ss 3 and 4 of SGSA 1982, which section of UCTA applies and what is the effect of that section on the exception clause?
Assuming that the exemption clause is incorporated as a term of the contract AND the wording covers the breach and loss that occurred:
s 6 or s 7 UCTA 1977 applies and the exemption clause is valid if reasonable
If there is a breach of an express term, what section of UCTA applies and what is the effect of that section on the exception clause?
Assuming that the exemption clause is incorporated as a term of the contract AND the wording covers the breach and loss that occurred:
s 3 UCTA 1977 applies (only if party dealing on other’s written standard terms of business) and the exemption clause is value if reasonable
What is the reasonableness test?
A test that applies to most exemption clauses in business-to-business contracts that tests whether the clause was fair and reasonable to include in the contract. Takes into consideration the respective parties, the nature of their dealings and where the clause exists in the contract, etc. The burden of showing this is on the defendant
What guidelines set out a number of factors to consider when ruling on the reasonableness test?
UCTA 1977, Schedule 2 (but generally, the courts will consider any relevant factor in deciding whether the clause was a fair and reasonable one)
State 4 guidelines in UCTA 1977, Schedule 2
- The relative strength of the bargaining positions of the parties
- Did the customer receive an inducement to agree to the exemption clause, or in accepting it did the customer have an opportunity to enter a similar contract with someone else, but without having to accept a similar exemption clause
- Whether the customer knew, or ought reasonably to have known, of the existence and extent of the clause
- Where the exemption clause will apply if a condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with the condition would be practicable
What 2 further guidelines set out in UCTA 1977 apply to limitation clauses?
- The resources that the defendant could expect to be available to them for the purpose of meeting the liability should it arise
- How far it was open to the defendant to take out insurance cover
Does UCTA 1977 make it mandatory for the court to consider the guidelines in specified cases (i.e. guidelines for testing for reasonableness)
Yes (e.g. the sale or supply of goods)
In what cases does CRA 2015 (which section?) prevent a liability for breach when considering sales contracts?
Section 31 provides that liability for breach of s 9 (goods to be of satisfactory quality), s 10 (goods to be fit for particular purpose) and s 11 (goods to be as described) cannot be excluded or restricted
When considering sales contracts, is there a requirement for goods to be of satisfactory quality, fit for their particular purposes and as described are all non-excludable statutory rights tat consumers should be able to enforce without restriction to attain the appropriate remedy
Yes
What are the implications of s 57 of the CRA 2015?
In regards to service contracts, it provides that a trader cannot exclude (compare restrict) liability for breach of s 49 (the implied term to perform a service with reasonable care and skill)
Excluding s 57, what can a trader not do (in terms of exemption and liability clauses) according the CRA 2015?
- Exclude or restrict a right or remedy in respect of liability for breaches of ss 49 - 52
- Make such a right or remedy or its enforcement subject to a restrictive or onerous condition
- Put a person at a disadvantage as a result of pursuing such a right or remedy, or exclude or restrict rules of evidence or procedure
What is the general rule regarding exemption clauses protecting third parties? Why?
In general, an exemption clause cannot protect a third party. This is because the privity rule provides that only a party can rely on a clause in a contract
What case illustrates the fact that an exemption clause cannot protect a third party?
Adler v Dickson [1955] 1 QB 158. Mrs Adler was injured boarding a ship. Her contract was with the shipping company and contained an exemption clause. She sued the master and the boatswain alleging negligence in not securing the gang plank. The court held that they were protected by the exemption clause as they were not parties to the contract
What is the major exception to the general rule that exemption clauses do not protect third parties?
It is contained in the C(RTP)A 1999. Provided a third party is named in an exemption clause or identified as a member of a class entitled to benefit from it, the third party can rely on the exemption to the same extent as the relevant contracting party
What are the three ‘hurdles’ that exemption clauses need to clear?
Incorporation, construction and statutory controls
What 3 things guide the court in determining whether a statement is a term or a mere representation?
Verification, importance and special knowledge
What is an example of a case where the seller asked the buyer to independently verify something he claimed? Was what he said considered to be a statement or mere representation?
Ecay v Godfrey (1947) 80 Ll LR 286, wherea seller of a boat stated that the boat was sound but advised the buyer to have it surveyed. His statement was held to be a mere representation.
What does Schawel v Reade [1913] 2 IR 64 highlight?
That the intentions behind the statement determine whether it is a term or mere representation.
The claimant, while examining a horse with a view to buying it for stud purposes, was told by the defendant: ‘You need not look for anything; the horse is perfectly sound. If there was anything the matter with this horse I should tell you’. In reliance upon this, the claimant bought the horse without examining it. It was then discovered that the horse was totally unfit for stud purposes and it was held that the statement was a term of the contract
What does it mean for a statement to be important (and thus a term of the contract)?
A statement is likely to be a term of the contract where it is of such importance to the person to whom it is made that, had it not been made, he would not have entered into the contract
What is the significance of Couchman v Hill [1947] KB 544 in regards to ‘an important statement is more likely to be considered a term of the contract’?
A heifer was put up for sale at an auction but no warranty was given as to its condition. The claimant asked the defendant whether the heifer was in calf and stated that he was not interested in purchasing if she was. He was told that she was not in calf. Around 7 weeks after the purchase, the heifer suffered a miscarriage and died. The claimant brought an action for breach of contract. The statement that the heifer was not in calf was held to be a term because of the importance the claimant attached to it
True or false: If the maker of a statement has some special knowledge or skill compared to the other party, the statement may be held to be a contractual term.
True
What is the significance of Oscar Chess Ltd v Williams [1957] 1 WLR 370?
The defendants mother owned a Morris car, the log book showing 1st registration on 13 April 1948. The defendant would often give lifts to a salesman employed by the claimants. The defendant wanted to acquire a Hillman Minx for £650, and offered the Morris to the claimants in part-exchange. In calculating an allowance of £290 for the Morris, the salesman consulted an industry guide which priced cars according to their year of manufacture. The claimants subsequently discovered that it had been made in 1939, and worth only £175. The claimants brought an action against the defendants to recover the difference of £115. The judge allowed the claim, but it was overturned, holding that the defendant’s representation as to the car’s age was not a term of the contract.
The claimants, who were car dealers, were in at least as good a position as the defendant to know the true age of the car
What is the significance of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623?
That parties with special knowledge have to take care when giving guarantees in contract.
The claimant (suing in his own capacity as well as through his company) told the defendant that he was looking for a well-vetted Bentley car. The defendant, who was a car dealer, found and bought a car and told the claimant that, since the car had been fitted with a replacement engine and gearbox, it had done only 20,000 miles. The claimant bought the car. It then transpired that it had gone 100,000 miles. The claimant brought an action for damages for breach of warranty. This succeeded. It was held that the defendant’s statement as to the car mileage was a term of the contract; the defendants, being car dealers, were in a better position than the claimant to know whether their statement was true
What is the significance of Esso Petroleum Co Ltd v Mardon [1976] QB 801?
That parties with special knowledge have to take care when giving guarantees in contract.
Esso bought a new site for a service station. When they purchased it they estimated that they could sell 200,000 gallons a year. Building regulations made them put the pumps on the back of the property, which considerably lowered the amount they could sell - but no change was made to the estimate. They leased it to Mardon and assured him he could sell 200,000 a year. It did not, so Mardon negotiated for a lower rent (from Sep 1864), but continued to put money into it. He lost large sums of money overall. On Esso’s action for possession and other relief, Mardon counterclaimed, seeking damages from Esso’s breach of warranty. The Court of Appeal decided that there was a contractual warranty.
Denning states that the facts that it was made by a party with special knowledge in an attempt to induce the other party to enter into a contract, and that it was relied upon, makes it a warranty. This warranty was breached, and Esso is liable for damages. The warranty found was not that the throughput would be 200,000 gallons, but that reasonable care had been taken in making that estimate
What are the 4 main methods by which a party’s written terms are incorporated?
Signature, reasonable notice, course of dealing and the parties’ trade practice
What is the parol evidence rule?
Where there is a written contract, neither party can adduce evidence extrinsic to that contract to establish that there are other terms (riddled with exceptions, many doubt its existence in modern law)
What are some exceptions to the parol evidence rule?
- The rule does not apply where the written document was not intended to contain the whole of the agreement
- Parol evidence is also admissible to prove terms which must be implied into the agreement
- Parol evidence is also admissibleto prove a custom which must be implied into the contract
- Parol evidence is also admissible to show that the contract is invalid on the ground of misrepresentation, mistake or fraud
- Parol evidence is also admissible to show that the contract has not yet come into operation (or that it has ceased to operate)
- Parol evidence is also admissible to prove the existence of a collateral agreement
What case highlights that parol evidence is admissible to prove the existence of a collateral agreement?
Extrinsic evidence was used to contradict the terms of the written agreement.
City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129. A lease entered contained a covenant that stated that the tenant could use the premises for business purposes only. The tenant had been induced to sign by an oral assurance given by the lessors’ agent that the lessors would not raise any objection to the tenant continuing his practice of residing in the premises. In the action by the lessors to forfeit the lease on the ground that the tenant was using the property for residential purposes, it was held that the assurance was admissible to prove the existence of a collateral agreement, despite that it contradicted the express terms of the written lease.
Has been subject to some criticism and it is inconsistent with earlier cases.
Describe L’Estrange v F Graucob Ltd [1934] 2 KB 394 and its significance
Shows that, as a general rule, a person is bound by a document that he signs, whether he reads it or not.
The claimant bought a slow machine from the defendants. She signed an order form that contained a clause which excluded liability for all express and implied conditions and warranties. When the claimant discovered that the machine did not work she brought an action for breach of an implied warranty that the machine was fit for the purpose for which it was sold. Judgement was given for the defendants on the ground that they had excluded their liability by virtue of the exclusion clause which was incorporated into the contract by the claimant’s signature (even though it was in the small print)
What limitations have been placed on L’Estrange v F Graucob Ltd by Grogan v Robin Meredith Plant Hire [1996] CLC 1127?
Grogan v Robin Meredith Plant Hire [1996] CLC 1127. There the document signed by the defendants was a time sheet for the hire of machinery which stated, at the bottom, that ‘All hire undertaken under CPA conditions. Copies available on request’. It was held that the indemnity clause contained in the CPA conditions had not been incorporated into the contract as a result of the signature. It was stated that it was ‘too mechanistic’ a proposition to state that the mere signature on a document that contains or incorporates by reference contractual terms has the effect of incorporating these terms into the contract. Furthermore, the nature of the document doesn’t usually have contractual effect
What does ‘non est factum’ mean?
This is not my deed
What are the competing ideas when a person pleads non est factum?
The effect of non est factum is to render the deed void. It has to reconcile 2 competing policies. Firstly, the injustice of holding a person to bargain to which he has not brought a consenting mind and secondly, the necessity of holding a person to a document which he has signed, especially where innocent 3rd parties rely to their detriment upon the validity of the signature
What case highlights the case of ‘non est factum’?
Saunders v Anglia Building Society (also referred to as Gallie v Lee) [1971] AC 1004. A widow made a will in which she left her house to her nephew, who wanted to raise money immediately on the security of the home. He did not want to do it in case his wife got any of the money, so he arranged that a friend should raise money on the house. The widow did not read the document because her glasses were broken, but she signed it after the friend told her that it was a deed of gift to the nephew. The friend raised money on a mortgage with the building society but he made no payment to the building society, nephew or widow. The building society sought to recover possession from the widow, who invoked the defence of non est factum. On the one hand, there is the injustice of holding the widow to an agreement to which she had not brought with a consenting mind; on the other hand, the building society had innocently relied to its detriment upon the signature (the latter was held - non est factum is kept within very narrow confines)
What limitations have been placed on L’Estrange by Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
The claimant took a dress to the defendant’s shop for cleaning. When the assistant asked her to sign a document headed ‘Receipt’, the claimant asked why. The assistant said that it was because the defendants would not accept responsibility for certain specified risks, including damage to the beads with which the dress was trimmed. The claimant signed the receipt which in fact contained a clause providing that the articles were accepted ‘on condition that the company is not liable for any damage howsoever arising’. The defendants returned the dress with a stain. The claimant brought an action claiming damages for negligence, which was held. The Court of Appeal held that the defendants could not rely on the above clause because it was not incorporated as a term of the contract owing to the assisstant’s misrepresentation
What 3 things must happen before terms can be incorporated into a contract?
- Notice of the terms must be given at or before the time of concluding the contract
- The terms must be contained or referred to in a document which was intended to have contractual effect
- Reasonable steps must be taken to bring the terms to the attention of the other party
What does Olley v Marlborough Court Ltd [1949] 1 KB 532 bring attention to?
That notice of the terms must be given at or before the time of concluding the contract in order for the terms to be incorporated into the contract (i.e. reasonable notice has to be given).
A notice in the bedroom of a hotel, which purported to exempt the hotel proprietors from any liability for articles lost or stolen from the hotel, was held not to be incorporated into a contract with a guest, whos furs and jewellery were stolen from her bedroom. The claimant brought an action for damages, alleging negligence. Because the notice was not seen by the guest until after the contract had been concluded at the reception, it was too late to be incorporated into the contract
What does Chapleton v Barry UDC [1940] 1 KB 532 bring attention to?
Terms must be contained or referred to in a document intended to have contractual effect in order for terms to be incorporated into the contract (i.e. reasonable notice has to be given).
The claimant hired a deck chair from the defendants. On paying his money he was given a ticket which, unknown to him, contained a number of conditions, including an exclusion clause. The claimant was injured when the chair gave way beneath him. He sued the defendants who relied on the exclusion clause. It was held that they could not rely on that because it was contained in a mere receipt which was not intended to have contractual effect
What does Parker v South Eastern Railway (1877) 2 CPD 416 bring attention to?
That reasonable steps must be taken to bring the terms to the attention of the other party in order for the terms to be incorporated into the contract.
The claimant left a bag at a cloakroom at the defendants’ railway station. He paid and received a ticket. On one side it said ‘see back’. On the back was printed, inter alia, that the company will not be responsible for any package exceeding the value of £10. When the claimant presented the ticket later on, the defendants could not find his bag. The claimant sought damages, the value of the bag was greater than £10. The Court of Appeal found that the claimant was not aware of the special condition and was not under the obligation, in the exercise of reasonable and proper caution, to read or make himself aware of the condition.
What does Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 bring attention to?
That reasonable steps must be taken to bring the terms to the attention of the other party in order for the terms to be incorporated into the contract.
The claimant parked in a garage and received a ticket. He paid when he returned and went to his car, but there was an accident before he got there. On appeal, the defendants argued that the ticket was a contractual document incorporating terms that excluded their liability. In small print on the ticket it said ‘this ticket is issued subject to the conditions of issue as displayed on the premises’. The conditions were found on a pillar opposite the ticket machine. There were many conditions, one of which an exclusion clause. The Court of Appeal held that, as insufficient notice had been given at the relevant time, the clause was not incorporated into the contract (the contract is concluded before he had a chance to read the conditions the ticket alluded to)
What does Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 bring attention to?
That reasonable steps must be taken to bring the terms to the attention of the other party in order for the terms to be incorporated into the contract (and this isn’t limited to exclusion clauses).
The claimant ran a library of photographic transparencies. The defendants enquired about the availability of certain transparencies. Later that day, 47 transparencies were delivered to the defendants in a bag that also contained a delivery note. By condition 2, a holding charge of £5 per day was made for every transparency retained beyond 14 days. By opening the bag and telephoning the claimants, informing them that they might be interested and would be in touch, the defendants entered into a contract with the claimants. The transparencies were never used and returned a month later. Interfoto invoiced the defendants pursuant to condition 2. The Court of Appeal held that, because insufficient notice was given of it, the ‘holding charge’ clause was not incorporated into the contract. In absence of the clause, the claimants were only entitled to an award of £3.50 per transparency per week on a quantum meruit basis
What case shows that deciding on whether a term is ‘onerous or unusual’ (and therefore the party seeking to incorporate it has to prove that the term has been fairly and reasonably drawn to the attention of the other party) is difficult?
Whether or not a term is onerous or unusual divided the Court of Appeal in AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265.
The defendants placed an order with the claimants for the purchase of goods. The claimants sent a confirmation note which, said ‘orders are subject to our conditions of sale - for extract see reverse’. The reverse extracted 5 conditions of sale, with the copy of the full list on request. The defendants never requested or saw the full conditions. The goods were defective and they needed to be returned for modification at the cost to the defendants. When the claimants invoiced the defendants the latter deducted the cost. The claimants disputed the deduction, having regard to their standard conditions of sale, condition 7.5 provided that ‘the purchaser shall return the defective parts at his own expense’. It was common ground that the conditions were not standard for the industry and that the claimants had not specifically drawn condition 7 to the defendants’ attention. The Court of Appeal (by a majority) held that, as insufficient notice had been given of it, condition 7.5 was not incorporated into the contract
What does O’Brien v MGN Ltd [2002] CLC 33 bring attention to?
That reasonable steps must be taken to bring the terms to the attention of the other party in order for the terms to be incorporated into the contract (and this isn’t limited to exclusion clauses).
The defendant operated a scratchcard game. If the card revealed matching sums of money, players should ring a premium rate number to see if they matched the mystery bonus amount. The claimant did just this for matching amounts of £50,000 and thought he had won. MGN intended to offer only 1 top prize of £50,000 but due to an oversight had 1472 people claiming it. MGN refused to pay and held a draw, in which the claimant was unsuccessful. MGN relied upon their rule 5, which authorised a draw where, as here, more prizes were claimed than available. The question was whether this rule was incorporated into the contract. The rules were published in full in some of MGN’s newspapers, but in this one it said ‘Normal Mirror Group rules apply’ and there were similar words on the scratchcard. The claimant accepted he had seen these references. The Court of Appeal held that sufficient notice had been given
What 2 cases highlight that terms can be incorporated into a contract by a course of dealing?
McCutcheon v David MacBraume Ltd [1964] 1 WLR 125
Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71
What 7 cases highlight that terms can be incorporated into a contract by reasonable notice?
Parker v The South Eastern Railway Company (1877) 2 CPD 416
Chapelton v Barry Urban District Council [1940] 1 KB 532
Olley v Marlborough Court Ltd [1949] 1 KB 532
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265
O’Brien v MGN Ltd [2001] EWCA Civ 1279, [2002] CLC 33
Which case held that the course of dealing (a way of incorporating terms into a contract) must be both regular and consistent?
McCutcheon v David MacBraume Ltd [1964] 1 WLR 125.
The claimant asked his brother-in-law to have his car shipped by the defendants. The brother-in-law took the car to the port and met the purser who quoted a return price, which the brother-in-law paid. The vessel sank owing to the defendants’ negligent navigation. The claimant brought an action against the defendants to recover the value of the car. The defendants relied on their standard terms, which excluded liability. However, the purser forgot to present the risk note to the brother-in-law. The latter had consigned goods by the defendants on a number of occasions (but not always). The claimant and the brother-in-law admitted that they knew the risk note to contain conditions but not what they were. The House of Lords held that the terms were not incorporated by a course of dealing (there was no course of dealing at all with the claimant and no consistent course of dealing with the brother-in-law
What is the significance of Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71?
The claimant’s car developed an oil leak, so he took it for repair at the defendants’ garage. Whilst it was there, a fire damaged the car. The claimant brought an action for damages. A clause appeared on an invoice form signed by customers before work was done. During the 5 years prior, the claimant had his car worked on at this garage only 3-4 times, not signing the form for 1 of them. The invoice form was never read by the claimant and had not been offered for signature on this occasion. The Court of Appeal held that the exclusion clause was not incorporated in the contract by a course of dealing. It focused on how regular the consistent dealings need to be for incorporation by a course of dealing. On the construction issue it was held that the clause on its proper construction did not here apply given that the defendants were seeking to exclude liability for negligence
What is the significance of British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] QB 303?
The position of incorporation by a course of dealing may be different when the contracting parties are commercial parties of equal bargaining power.
The parties had dealt with each other on 2 prior occasions. On both cases a printed form was used. Then, the defendants urgently required a crane and contacted the claimants. The defendants’ manager was unaware of the previous dealings. Hire and transport charges were agreed upon and the crane was delivered. The printed form was subsequently sent in accordance with the claimants’ practice. The defendants failed to sign the form. Once on site, the crane sank twice in marshland. The second time, it was recovered at great expense to the claimants, who sought to recover their costs from the defendants. The claimants argued, inter alia, that the terms contained in the printed form were incorporated and that under those terms a hirer was obliged to indemnify the owner against all expenses in connection with the use of the plant. The Court of Appeal held that the conditions were incorporated by reason of the parties’ trade practice. Such terms were customarily included in the trade to which both parties belonged
How can terms be implied into a contract?
Terms may be implied by the courts (by fact, law or custom) or by statute
What is the difference between terms implied by fact and by law?
The former reflects the idea that some implied terms are based on the intention of the parties while the latter are based on the nature of the contract in question and therefore apply to all such types of contract
How are terms implied in Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988? Describe the case.
Terms implied by fact (i.e. by the intention of the parties).
The Belize government established a company to take over the country’s telecommunications services. The articles of association provided the holder of the ‘special’ share who also owned 37.5% of the share capital, could appoint directors. Belize Telecom (BT) purchased the ‘special’ share, the requisite share capital and appointed directors. BT then went into financial difficulties and ceased to hold the 37.5% share. The articles made no provision for the removal of these appointed directors, and the attorney-general sought a declaration that a term should be implied into the articles that such appointed directors should vacate office. BT argued that since the articles were silent as to the removal of the appointed directors, they were irremovable and the court had no power to introduce new terms. The term was held to be implied into the contract (the court found that the parties intended it to be incorporated)
What case establishes the ‘business efficacy’ test in regards to implying terms by fact?
The Moorcock (1889) 4 PD 64. Ship owners contracted with the defendant wharfingers to discharge a ship at their jetty which extended into the River Thames where the ship must necessarily ground at low water. The river-bed adjacent to the jetty was not vested in the wharfingers, and they had no control over it. They had taken no steps to determine whether the space was safe for the ship and, on grounding, she suffered damage because of the uneven nature of the river-bed next to the jetty. The ship-owners claimed for breach of contract. The wharfingers contended there was no term of the contract stating they were under a duty to ascertain the state of the river-bed. There was no implied warranty that the space was a safe place for the ship. The ship owners were successful in their claim. The whole purpose of the contract was to use the jetty and the jetty could not be used without the vessel grounding. The wharfingers must, therefore, be deemed to have impliedly warranted they had taken reasonable steps to ensure the vessel could safely ground without suffering damage
What is the business efficacy test?
Means the power to produce intended results. This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended.
This test requires that a term can only be implied if it necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied. If the contract makes business sense without the term, the courts will not imply the same. Under the test, the proposed term will be implied if it is necessary to give business efficacy to the contract (The Moorcock (1889) 14 PD 64)
What cases highlight terms implied by fact?
The Moorcock (1889) 14 PD 64
Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988
Marks & Spencer plc v BNP Paribas Services Trust Company (Jersey) Limited [2015] UKSC 72, [2016] AC 742
Yam Seng Pte Limited v International Trade Corporation Limited [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep 526
Sheikh Tahnoon Al Nehayan v Kent [2018] EWHC 333 (Comm)
What issue does Marks & Spencer plc v BNP Paribas Services Trust Company (Jersey) Limited [2015] UKSC 72, [2016] AC 742 demonstrate?
Not implying terms of a contract by fact.
A business tenant (Marks and Spencer) had exercised its right to terminate a commercial lease under a ‘break-clause’. The question at issue was whether a term should be implied into the lease entitling the tenant to repayment of an apportioned part of the rent for the period between the termination of the lease and the end of the quarter for which the rent had already been paid. The Supreme Court unanimously decided that no such term should be implied
What are the 5 conditions that must be satisfied (according to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266) for a term to be implied?
- It must be reasonable and equitable
- It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract if effective without it
- It must be so obvious that ‘it goes without saying’
- It must be capable of clear expression
- If must not contradict any express term of the contract
What does Yam Seng Pte Limited v International Trade Corporation Limited [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep 526 tell us about implied terms?
In 2009, the parties entered into a written contract under which the defendant granted the claimant the exclusive right to distribute goods in parts of the Middle East, Asia, Africa and Australia. In July 2010 Yam Seng terminated the contract for ITC’s alleged repudiatory breach and sought damages. It was held that they were in repudiatory breach in 2 respects. The 1st was in threatening to use a distributor other than Yam Seng. The 2nd was that ITC was in breach of an implied term (of fact) to perform in good faith which required ITC not to give false information, knowingly, to Yam Seng.
Many contracts are likely to include implied duties on the parties to act honestly (even if there is no legal principle of good faith of general application). This is because honesty is the background assumption of most commercial dealings
What are the key aspects of the doctrine of business efficacy?
- An unexpressed term in an agreement (that the parties must have intended that term to form part of their contract)
- The officious bystander test. The term must go without saying
- In a contract between the joint intent of the parties and the intent of the reasonable person, joint intent trumps
- The terms of the contract will have to be understood in the way the parties wanted and intended them to be
- Implied terms are not to be readily inferred (the question of implication arises when the instrument does not expressly provide for what is to happen when some even occurs. The most usual inference in such a case is that nothing is to happen)
What is business efficacy with regards to implied terms?
Would the contract make business sense without the term?
What case is the most wide ranging and progressive analysis in English law of the duty to deal in good faith?
Yam Seng Pte Limited v International Trade Corporation Limited [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep 526
Why is Sheikh Tahnoon Al Nehayan v Kent [2018] EWHC 333 (Comm) significant?
It reaffirms what was set out in Yam Seng Pte Limited v International Trade Corporation Limited [2013] EWHC 111 (QB), [2013] 1 Lloyd’s Rep 526.
The claimant and defendant agreed to jointly own a hotel business, which was expanded to include an online travel business. It was a financial disaster. The claimant sought to recover some of his losses by suing for breach of a framework agreement (restructuring the businesses) and for failure to make payments under a promissory note. The defendant counter-claimed for inter alia, damages for breach of an implied term of good faith. The claimant was held to be in breach of such a term by inducing the defendant to enter into the framework agreement and to make the payments by means of a threat to use the claimants position as co-owner to block a deal which the defenda`nt had negotiated with a 3rd party. The approach in Yam Seng was affirmed and applied here
What cases highlight terms implied by law?
Liverpool City Council v Irwin [1977] AC 239
Shell UK Ltd v Lostock Garage Ltd [1976] WLR 1187
Scally v Southern Health and Social Services Board [1992] 1 AC 294
What is the case of Liverpool City Council v Irwin [1977] AC 239 authority for? Describe the case.
When the courts seek to imply a term in law (as in this case), they are not seeking to decipher the parties’ objective intentions. They are seeking to determining what is a necessary clause for a particular class of contract.
Tenants of council flats withheld rent because of the condition of the properties. The council sued for possession, the tenants countersued for breach of the repair, maintenance and quiet enjoyment covenants. They argued these were implied into the contract. The House of Lords held that the form signed by the tenants was completely unilateral (so the court had to decide what the remained of the contract was). It was held that the terms were to be implied into this kind of contract (but the council was not in breach of them)
Describe Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187 and what issues it raises.
Raises the issue of terms implied by law.
The defendant was a small garage which was tied to Shell, along with 2 other neighbouring garages, by a solus agreement. There was a petrol price war in 1975. Shell had a support scheme that enabled them and their partner garages to sell for 70p per gallon (it guaranteed to meet any losses which participants faced in remaining competitive, but the defendant’s drop in sales was not sufficient to participate in the scheme). As such, the defendant purchased their fuel elsewhere and Shell sought for an injunction to prevent them. The defendant claimed that Shell had unreasonably restricted their trade, after finding out that they had supported 2 of the competitor stations nearby. One of the issues was whether the souls agreement contained an implied term obliging the claimant not to discriminate against the defendant in favour of a competitor so as to render the defendant’s sales economically unviable. If there was such a term, the defendant was entitled to terminate the souls agreement for the claimant’s breach. It was held that there was no implied contractual term
What case is an important example of the House of Lords applying the approach in Liverpool CC v Irwin to imply a term as a necessary incident of a definable category of contractual relationship?
Scally v Southern Health and Social Services Board [1992] 1 AC 294.
The claimants were employed by the defendants. In order to qualify for a full pension an employee was required to contribute 40 years’ service. In 1975 provision was made by regulation to enable employees to purchase ‘added years’ of pension entitlement so as to qualify for maximum pension entitlement. The regulation required employees to take advantage of the offer within a particular period - but the claimants were not made aware of the offer by the defendants. They claimed damages for, inter alia, the tort of negligence and breach of contract. It was submitted that their contract contained an implied term that obliged the defendants to bring the offer to their attention. The House of Lords held that there was such an implied term because it was a necessary incident of the category of contractual relationship in question
What is 12(1) of the SGA 1979 and why is it important?
Important for terms implied by statute to contracts (business to business).
In a contract of sale, there is an implied term on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass
What is an estoppel by convention?
A doctrine that prevents a party from denying that, for example, certain words have a particular meaning where the parties have negotiated with each other on the common assumption that that meaning was correct
What does section 69 of Part 2 of the CRA 2015 state?
If a term in a consumer contract could have different meanings, the meaning that is most favourable to the consumer is to prevail
What case laid down the modern approach to interpreting a contract?
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Describe Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Investors entered into home income plans. As part of these plans, the claimants took out mortgages on their homes to secure advances. They then invested these advances into equity-linked bonds. They suffered heavy losses after a fall in the equities market. The investors were (negligently) advised by independent financial advisors, but these had since become insolvent. They had claims in tort and for breach of statutory duty. For this reason, they instead sued the Investors Compensation Scheme, which provided compensation to those with unsatisfied claims against authorised persons in the investment industry.
In section 3(b) of the claim form (the form required the investors to assign all rights against 3rd parties to the ICS) the assignment excluded ‘any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromich Building Society’ so that investors could still sue on some claims individually. While ICS Ltd was suing, West Bromwich BS argued that ‘or otherwise’ meant that claims for damages, as well as rescission, had not been assigned. ICS Ltd argued that the clause actually meant that claims for damages had been assigned, because ‘or otherwise’ referred to rescission based claims other than undue influence, but not damages.
The House of Lords held that the right to claim recession was retained by the investors but the right to claim for damages had indeed been assigned (held in favour of thee ICS). Construed in its context, the words ‘Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society’ in effect had meant ‘Any claim sounding in rescission (whether for undue influence or otherwise)’. It followed that ICS Ltd could sue West Bromwich BS, and other building societies, to vindicate the investors’ claims. I.e. the right to claim rescission had been retained but the right to claim damages had been validly assigned. This construction meant that only claims for rescission (and not damages) were excluded from the assignment. But the 5 principles should not obscure a decision of the facts - it would seem that a claim for rescission cannot be assigned in any event so that, as construed, the clause was superfluous and merely served to declare what was already the legal position
What are Lord Huffmann’s 5 principles of interpretation? From what case?
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.
The contract should be construed according to:
- What a reasonable person having all the background knowledge would have understood
- Where the background includes anything in the ‘matrix of fact’ that could affect the language’s meaning (i.e. the background includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man)
- But the background excludes prior negotiations, for the policy of reducing litigation
- Where the meaning of words is not to be deduced literally, but contextually
- On the presumption that people do not easily make linguistic mistakes
What is the significance of Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101?
Direct challenge to the principle that pre-contractual negotiations are admissible (which was laid out in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896). It creates a so-called ‘red ink’ rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in its bargaining context. It also reaffirmed the rule that pre-contractual negotiations were ordinarily inadmissible when construing a contract
Describe Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101.
Persimmon agreed to get planning permission and build residences on Chartbrook’s land, then sell the properties. Chartbrook would pay for it, subject to a balancing payment of ‘additional residential payment’ (ARP) that would be paid by Persimmon to Chartbrook. Chartbrook calculated this to mean approximately £4,500,000 but Persimmon said that on proper construction the amount was closer to £900,000. Persimmon argued that even if they were wrong on construction of the document, rectification should be granted, and if not their pre-contractual negotiations should be considered. Chartbrook argued that pre-contractual negotiations were inadmissible (the High Court and Court of Appeal agreed). There was no limit to the ‘red ink’ that the court could use to correct the verbiage when it was clear that in its commercial context, an agreement could not make sense - the only requirement was that it should be clear to a reasonable person what was meant
What 3 situations (outlined in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101) are outside the scope of the exclusionary rule (that evidence of pre-contractual negotiations is inadmissible)?
- It is possible to have regard to pre-contractual negotiations for the purpose of establishing that ‘a fact which may be relevant as background was known to the parties’ (i.e. in so far as they are part of the factual matrix)
- Where the issue is one that relates to the rectification of the contract
- Pre-contractual negotiations are admissible for the purpose of establishing an estoppel by convention
The distinction between ‘objective facts’ (which are admissible) and statements in the course of pre-contractual negotiations (which are inadmissible) will not always be easy to draw. True or false?
True
Why is it very difficult to successfully rely on an estoppel by convention?
Because of the requirement that both parties entered into the contract on the basis of a common assumption
Evidence of conduct subsequent to the making of the contract is inadmissible to which kind of contract?
Written (it is admissible for oral contracts)
Is there a close relationship between rectification and interpretation? Why is this a problem?
Yes. This could be an issue because it confuses the meaning of what the parties said in the document with what they meant to say but did not say
Describe Arnold v Britton [2015] UKSC 36; [2015] AC 1619?
The landlord, Mr Arnold, owned a leisure park with 91 chalets. The 21 lessees in question held 99-year leases of the chalets. Clause 3(2) of the contract required each lessee to pay an annual service fee. The wording varies across each lease, but the lessee was typically required to pay ‘a proportionate part’ of the cost of providing services, expressed to be £90 in the first year and rising by 10% each year thereafter. The lessees argued that this interpretation led to such an absurdly escalated charge in later years it could not have been intended. Should the court take ‘commercial common sense’ approach and interpret the clause so that it doesn’t lead to absurdity?
It was held that the contracting parties have the control over the language they use in the contract, therefore, the courts should be very slow to reject the natural meaning of the clause. The fact that the charge would significant;y exceed to cost of providing services was no reason to depart from the natural meaning of the clause, so the Supreme Court dismissed the tenants’ appeal
What does ‘contra proferentem’ mean?
Any ambiguity in a clause will be construed ‘against the person putting it forward’
In examining the courts’ approach to construing exemption clauses, it is helpful to divide the cases into 3 sub-sections, where specific rules (applying the general contra proferentum approach) have been developed. What are the 3 sub-sections?
- Excluding or limiting liability for negligence
- Excluding or limiting liability for fundamental breach
- Construing limitation clauses
What is the significance of Alderslade v Gendon Laundry Ltd [1945] KB 189? Describe the case.
Application of a limitation clause due to negligence.
The claimant sent 10 large handkerchiefs to the defendants to be washed. The defendants lost them. The claimants brought an action for damages (£5) to cover the replacement cost. The defendants relied on the term ‘the maximum amount allowed for lost or damaged articles is twenty times the charge made for laundering’, which in this instance was 11s 5 1/2d (just over a 10th of what was claimed). At first, the claim succeeded. In allowing the defendants’ appeal, the Court of Appeal held that the limitation clause did apply here because, although it did not expressly mention negligence, the defendants could only have been liable for the loss if they had been negligent
What is an exclusion clause/
A clause in a contract or a term in a notice which appears to exclude or restrict a liability or a legal duty that would otherwise arise
What’s an indemnity clause?
Where one contracting party promises to indemnify or reimburse the other for any liability incurred by him in the performance of a contract
Describe Wallis, Son and Wells v Pratt and Haynes [1911] AC 394.
A contract for the sale of seeds contained a clause that stated that the sellers gave ‘no warranty express or implied’ as to the description of the seeds. The seeds did not correspond with the description so the buyers brought an action for damages against the sellers, who relied on the exclusion clause. It was held that they could not do so because it only covered a breach of a warranty and, in failing to provide seeds which corresponded with the description, they had broken a condition
What is the significance of Canada Steamship Lines Ltd v R [1952] AC 192?
The courts have evolved specific rules of guides of construction for negligence liability clauses, which find their origin in the speech of Lord Morton of Henryton in this case (i.e. Lord Morton’s test)
Describe Canada Steamship Lines Ltd v R [1952] AC 192
The claimants’ goods were stored in a shed leased from the Crown (the defendant). The were destroyed in a fire caused by the defendant’s negligence. By clause 7 of the lease ‘the lessee shall not have any claim…against the lessor for…damage…to…goods…being…in the said shed’. The Privy Council held that the exclusion clause did not exclude liability because, applying the principles in the Alderslade case, the defendant could realistically have been strictly liable for damage to the goods (e.g. by breach of its strict obligation to keep the shed in repair). It was further held that an indemnity clause in the lease did not, on its true construction, require the lessee to indemnify the lessor for the consequences of the lessor’s own negligence
What are the limbs of Lord Morton’s test?
- If a clause contains language which expressly exempts the party relying on the exclusion clause from the consequences of his own negligence then (subject to UCTA) effect must be given to the clause
2 (In combination with 3). Are the words wide enough, in their ordinary meaning, to cover negligence. If a doubt arises, it must be resolved against the party relying on the clause
3 (In combination with 2). Consider whether the exclusion clause may cover some kind of liability other than negligence - if so, it will be confined in its application to that alternative source of liability, rather than negligently inflicted loss
What are the 2 problems associated with the 2nd and 3rd limbs of Morton’s test?
- They make contradictory demands of the draftsman - the 2nd limb demands that the clause be drafted as widely as possible so that it will be held to encompass negligently inflicted damage. The 3rd limb demands the clause be narrow in scope because the wider it is, the more likely that it will encompass some source of liability other than negligence
- The parties may intend the same clause to apply to both negligently and non-negligently inflicted damage. The application of the Morton’s test would be more likely to frustrate that intention than to give affect to it (and rules which so frustrate the intention of the parties should be abandoned at the first opportunity)
What case highlights an exclusion clause for a fundamental breach, with the House of Lords ruling that there is no rule of law preventing such?
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
The claimants entered into a contract with the defendant to provide a night patrol service for their factory. One of Securicor’s staff decided to start a fire to keep himself warm, but the fire spread and burned down the factory. After being sued, Securicor relied on an exclusion clause that stated that Securicor would ‘under no circumstances be responsible for any injurious act or default by any employee…unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of [Securicor]’. Photo production asserted that the employee’s actions as agent of Securicor constituted a fundamental breach of the contract, and therefore invalidated it along with the exclusion clause.
In the Court of Appeal, it was determined that the doctrine of fundamental breach did apply and Securicor, who appealed, was liable. The House of Lords held that the doctrine of fundamental breach was not relevant here, and that the case was a matter of construction of the contract. The exclusion clause did on the facts, cover the damage in question, and therefore Securicor were not liable for the damage
What is the doctrine of fundamental breach (or rule of law)? Which case was the authority for it?
Under the doctrine of fundamental/repudiatory breach, exclusion clauses were deemed not to be available to a party in fundamental breach of the contract (worse than a breach of condition).
Karsales v Wallis [1956] EWCA Civ 4
What 2 approaches have been adopted to deal with the situation where a breach of contract by the party relying on the exclusion clause is of a fundamental nature?
Rule of law/doctrine of fundamental breach approach
Rule of construction approach
What is the difference between a breach of condition and a repudiatory breach?
Breach of condition is a serious breach that denies the plaintiff the main benefit of the contract. It gives the plaintiff the option to repudiate. A repudiatory/fundamental breach is even more serious, with the result that any exclusion clause limiting the defendant’s liability would automatically become void and ineffective. This kind of breach automatically discharges the entire contract
Describe Karsales v Wallis [1956] EWCA Civ 4.
A buyer inspected a car dealer’s used Buick car and agreed to buy it. The car was later delivered at night, and had been towed. When the buyer inspected the car in the morning, it would not work and had clearly been in an accident (as well as parts being swapped for old ones, or missing altogether). This was a serious breach, but the dealer relied on a clause that read ‘no condition or warranty that the vehicle is roadworthy or as to its age, condition or fitness for any purpose is given by the owner or implied herein’. The Court of Appeal declared that a ‘car’ was a ‘vehicle capable of self-propulsion’ and therefore it was not a proper car. The Court held that the dealer was in breach of a fundamental obligation and could not rely on the exclusion clause
What cases ended the rule of law, or doctrine of fundamental breach?
Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, the House of Lords appeared to have rejected fundamental breach as a rule of law, instead treating it as a matter of construction. This was overturned in the Court of Appeal. It was not until the Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 case that it was finally laid to rest
What are some of the issues regarding the doctrine of fundamental breach?
- Unfair that a term agreed upon by two parties of equal standing can be set aside by a court
- Confusion around what a fundamental breach actually is
- Since any breach of condition entitles a claimant both repudiation and damages, what does a fundamental breach actually offer?
Should a harder or softer approach be taken in regards to limitation clauses (compared to exclusion clauses)?
Softer
What is the importance of Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964? Describe the case.
Shows that a softer approach should be taken to construing limitation, as opposed to exclusion, clauses.
Securicor had contracted to provide a security service in Aberdeen harbour for fishing boats moored there. By clause 2(f), if, in respected of the services, Securicor had any liability to a customer ‘whether under the express or implied terms of this contract, or at common law, or in any other way’ that liability was limited to a sum ‘(a) not exceeding £1000 in respect of any one claim arising from any duty assumed by the company…which involves the provision of any service not solely related to the prevention or detection of fire or theft.’ In 1970, a boat belonging to the claimant (ACF) was sunk when fouled (i.e. while anchored, crashed against) another boat. The trial judge found that the loss had been caused by Securicor’s breach of contract and negligence and awarded damages of £55,000. The damages were reduced to £1000 on appeal. On ACF’s appeal to the House of Lords against that reduction, it was held that, on a true construction, the limitation clause did apply here
What is the importance of George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803? Describe the case.
Shows that a softer approach should be taken to construing limitation, as opposed to exclusion, clauses. The distinction between a limitation clause and an exclusion clause remains part of English law because the decision in Ailsa Craig was followed by the House of Lords in George Mitchell v Finney Lock Seeds.
The defendants (the appellants) were seed merchants. The claimants were farmers who ordered cabbage seeds from them. The defendants supplied the wrong type of seed so the crop, planted over 63 acres, did not grow properly and was worthless. The price of the seeds was £201.60 but the damages claimed we £61,513. By conditions of sale in the contract, the defendants argued that they had limited their liability to replacement of defective seeds or a refund of the price paid. It was held that as a matter of construction, the relevant condition did limit their liability; but that it was not fair and reasonable to allow them to rely on it. The Court of Appeal (and the House of Lords) applied the then relevant statutory provision of the SGA 1979 (s 55) and UCTA 1977 - where the test of reasonableness failed
When does UCTA 1977 and part 2 of the CRA 2015 come into play?
If a clause is incorporated and as a matter of construction applies to the facts then one needs to go on to address whether it is invalidated by statute
What kinds of contract are excluded from UCTA 1977?
By section 26, international supply contracts and by Schedule 1, insurance contracts and contracts relating to the creation or transfer of an interest in land or an intellectual property right
Does the case Phillips Products Ltd v Hyland [1987] 1 WLR 659 count as an exclusion of liability? Describe the case.
The 2nd defendants, Hamstead, a plant hire company, hired out an excavator to the claimants together with the 1st defendant (Mr Hyland), a driver/operator. While operating it, the 1st defendant negligently damaged the claimants’ building. The issue was whether a term in the contract acted as an exclusion clause, and if it was reasonable. It read that when a driver or operator is supplied to work the plant, he shall be under the control of the hirer, with the latter responsible for all claims arising in connection with the operation of the plant by the said operatures. The claimants argued that the clause was caught by s 2(2) of UCTA and that it failed to satisfy the requirement of reasonableness. The defendants argued that the clause was not caught by s 2(2) on the ground that there was no negligence within the meaning of s 1(1)(b) because there had been no breach of their obligations as they had never accepted any liability for the acts of the driver.
The Court of Appeal held that the term acted as an exclusion clause and was unreasonable (because of the short notice, little opportunity for the claimant to familiarise themselves with the term, they had no choice but accept the driver (and couldn’t choose which driver to have) and there was little opportunity to arrange their own insurance cover) and thus the 2nd defendants were liable
What does Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649 highlight? Describe the case.
The 1st defendants (Lohan), a plant hire company, hired out an excavator with a driver and operator to JW Hurdiss Ltd (3rd party). One of the operators (the claimant’s husband) was killed due to the negligence of the other, for which the 1st defendants were vicariously liable. Condition 8 of the contract said that the hirer alone should be responsible for all claims arising in connection with the operation of the plant. Condition 13 provided that the hirer was to ‘fully and completely indemnify the owner in respect of all claims by any person whatsoever for injury to person or property caused by the use of the plant’. In reliance on conditions 8 and 13, the 1st defendants argued that their liability to the claimant had been transferred to Hurdiss and that Hurdiss was bound to indemnify them. The defendant was awarded its indemnity and the claimant appealed on the bases that the clause was not sufficiently clearly worded to absolve liability or alternatively it was an exclusion clause and therefore was invalid under UCTA 1977 s 2(1).
It was held that condition 8 was not caught by UCTA 1977 and was effective to transfer liability to the hirers. Section 2(1) had no effect because liability was not excluded towards the victim of the negligent act. It only excluded liability towards T Lohan themselves. It transferred liability
What is the difference between Phillips Products Ltd v Hyland [1987] 1 WLR 659 and Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649?
In the latter, conditions 8 and 13 did not operate to transfer any liability form the tortfeasor to the victim of the tort. It was concerned with an allocation of liability as between the tortfeasor and a 3rd party who was not the victim of the tort. Section 2 of UCTA 1977 was, therefore, not triggered because the exclusion of liability referred to in the Act is an exclusion of liability to the victim of the tort (or breach of contract)
Describe Smith v Eric S Bush [1990] 1 AC 831.
A prospective purchaser of a house (the claimant) applied for a mortgage with a building society. The building society contracted with the defendants, a firm of surveyors, for them to carry out a valuation survey. In the application form for the mortgage it was stated that the building society would provide the claimant with a copy, along with a disclaimer as to the accuracy of the report. The report negligently stated that no essential repairs were needed, so the claimant bought the house. 18 months later the chimney fell through the roof. The claimant brought an action for damages in the tort of negligence against the defendants. Two questions arose: 1 (which we are concerned with here) was whether the disclaimer fell within UCTA 1977 and 2. whether the disclaimer satisfied the reasonableness test.
It was held that UCTA 1977 did apply and that the exemption clause was unreasonable. It was of particular note that this was a low value property to be used as a dwelling and that it was common for purchasers to rely on valuations in making such decisions. If it was an investment or for a business, an exemption clause of this nature could be reasonable
What is the significance of Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600? Describe the case.
The defendants entered into a contract with the claimants for the purchase and installation of an overhead conveyor system. Myer withheld the final 10% of the price alleging breach of contract. In an an action by Gill for that 10%, Myer sought to exercise a set-off. This would normally have given them a defence to Gill’s application for summary judgement but Gill sought to rely on condition 12.4 in the conditions of sale. The clause prohibited the purchaser from refusing to pay or from attempting to set off any amount owed for whatever reason.
It was held that UCTA 1977 applied to this case and that the anti-set off clause amounted to an exclusion clause. It was found to be unreasonable since it effectively can act to exclude liability for breach of contract.
It was observed that anti-set off clauses should be deemed to be unreasonable where they prevent the attempted set off of credits which the other party had admitted to owing the party seeking to set off. I.e. a ‘no set off’ clause is an exception clause within UCTA 1977
Describe Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53.
Tudor Grange, who owed money to Citibank, made certain general allegations that they had claims against Citibank, although they refused to specify what they were. Tudor Grange entered into a ‘release agreement’ with Citibank whereby they agreed to release them from all claims, demands and causes of action whether or not presently known or suspected by Tudor Grange in return for the bank making them a further loan. The loan was secured on Tudor Grange’s assets. Later, Tudor Grange claimed that the release was of no effect since it was contrary to s 10 of UCTA 1977. The court decided that it did not apply here (s 10 does not apply to where the parties to both contracts are the same)
What is section 10 of UCTA 1977?
A person is not bound by any contract term prejudicing or taking away rights of his which arise under another contract, so far as those rights extend to the enforcement of another’s liability which this Part of this Act prevents that other from excluding or restricting
Was the limitation clause found to be reasonable in St Albans City and District Council v International Computers Ltd [1995] FSR 686? Describe the case.
The claimants entered into a contract with the defendants for the supply and installation of software to enable the claimants to create a register for the Community Charge. Owing to an error in the software, the claimants gave an inaccurate population figure to the Secretary of State. The claimants suffered a loss of over £1.3m. In an action for damages for breach of contract, the defendants sought to rely on a clause limiting their liability to £100,000. The full damages were awarded, with the clause held to be unreasonable under UCTA 1977 s 11. On appeal, the damages were reduced by £484,000 but the reasoning on UCTA 1977 was upheld
Were the two limitation terms in Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317; [2001] 1 All ER (Comm) 696 considered reasonable? Describe the case.
The claimant company contracted with the defendant for the supply of a bespoke software system. The contract contained the defendant’s standard terms, which included a limit of liability clause of 2 terms, one excluding liability for any ‘claims for indirect or consequential losses whether arising from negligence or otherwise and the other limiting liability in any event to the contract price paid (here, £104,600). The system proved to be defective and the claimant sought damages of over £5.5m for breach of contract comprising loss of profits and the cost of a working system. The Court of Appeal reversed the trial judge, holding that each of the two terms was reasonable under UCTA 1977 s 11
What do sections 9, 10, 11 and 14 of the CRA 2015 refer to?
9 - goods to be of satisfactory quality
10 - goods to be fit for a particular purpose
11 - goods to be as described
14 - goods to match a model seen or examined
What do chapters 2 and 4 refer to in Part 1 of the CRA 2015?
Chapter 2 - goods
Chapter 4 - services
What do sections 31 and 57 of Chapters 2 and 4 of the CRA 2015, respectively, refer to?
Liability that cannot be excluded or restricted
What does section 62 of Part 2 of the CRA 2015 state?
The definition of an unfair term (‘a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer’)
When is a term excluded from assessment of fairness under the CRA 2015? I.e. what is the ‘core exclusion’ from the Act?
Part 2 section 64: Provided that it is transparent and prominent (and not a term listed in Part 1 of Schedule 2), a term cannot be assessed for fairness if it specifies the main subject matter of the contract or the assessment is of the appropriateness of the price payable compared with the goods, digital content or services supplied - this is referred to as the core exclusion
Where can guidance on the kind of terms which may be regarded as unfair under the CRA 2015 be found?
Schedule 2 of the CRA 2015
What does section 65 of the CRA 2015 Part 2 state?
That a trader cannot exclude or restrict liability for death of personal injury resulting from negligence
What is the Unfair Terms in Consumer Contract Regulations 1994/1999? How does it relate to the CRA 2015 and UCTA 1977?
UTCCR was passed to comply with a European Economic Community directive. The CRA 2015 repeals and replaces the UTCCR and replaces the UCTA 1977 in relation to consumer contracts and notices
What are the two significant cases regarding case law on the UTCCR 1994/1999?
Director General of Fair Trading v First National Bank Plc [2001] UKHL 52; [2002] 1 AC 481
ParkingEye Ltd v Beavis [2015] UKSC 67; [2016] AC 1172
What is the core terms exemption in the CRA 2015?
Contract terms relating to the subject of the contract or to the price were previously treated as core terms which were exempted from the fairness requirement. The UTCCRs only required that these terms be in plain and intelligible language. The CRA has changed this. Though the core terms are still exempt from the fairness requirement s 64 provides that this exemption is only available when the contract term is: transparent (legible and expressed in plain and intelligible language) and prominent (brought to the consumer’s attention)
What is
Under the general law, once there has been a judgement, the obligation to repay becomes merged in the judgement, so that contractually agreed interest is no longer payable albeit that statutory interest generally is by reason of, e.g. the County Courts (Interest on Judgement Debts) Order 1991. However, debts in respect of credit agreements regulated by the Consumer Credit Act 1974 – which includes loans by banks to consumers – are excluded so that no statutory interest is payable on such judgement debts.
Hence the defendant bank’s inclusion of condition 8 entitling it to contractual interest after judgement. The plaintiff considered this unfair. Exercising the power under what is now paragraph 3 of schedule 3 of the CRA 2015 (was Reg 8 of the 1994 Regulations) the Director General of Fair Trading sought an injunction to prevent the bank continuing to use the term.
The term was not within the core exclusion to that the Regulations applied; but that, overturning the Court of Appeal, the term satisfied the test of fairness so that the injunction should be refused.
Why is this important? The provisions of the Consumer Rights Act 2015 (enacted subsequent to this case) contains similar terminology to the Unfair Terms in Consumer Contracts Regulations 1994. This case therefore also provides guidance on the meaning of that statute.
Describe ParkingEye Ltd v Beavis [2015] UKSC 67 and it’s relevance.
The defendant parked his car in a car park managed by the claimant. Notices at the entrance and around the car park stated that the maximum stay was 2 hours and £85 would be charged to overstayers. The defendant was charged after staying for 3 hours and refused to pay because the charge was a penalty and/or an unfair term (and therefore unenforceable under the UTCCR 1999).
It was held that the term was not a penalty and not unfair.
