Contract Construction Flashcards
Construction of Contract
Types of Contractual Terms (3 terms)
1) Express Terms
2) Terms implied by behaviour or statute
3) Terms incorporated by reference
Contractual Terms
Express Terms
Clearly set out verbally or in writing
If you want to rely on a term make sure you express it.
These are the terms specifically set out in a contract.
An express term that attempts to limit liability according to Sale of Goods Act will be void.
Contractual Terms
Implied by behaviour or statute
Terms Implied by behaviour or statute as a general rule a term cannot be implied if it contradicts an express term
Not expressed but a court may hold them to be included in a contract.
Some terms are not specifically expressed within a contract however the court may hold them to be included in a contract.
Contractual Terms
Terms incorporated by reference
Full details of terms noted elsewhere
Nowadays you are often referred to webpages for terms and conditions.
For example, a contract may refer specifically to a sale of goods act (1974)
Construction of Contract
Background Info
Contracts can be extremely straightforward with rights and obligations fulfilled almost immediately but they can also be extremely complex with very many terms attached to them.
Where a dispute arises between parties to a contract the court may be called upon to determine the contract’s terms. In interpreting the terms the court will consider what parties actually said rather than what they meant to say.
Implied terms
3 categories
Contracts usually come into a court when there is a dispute. This is when implied terms are applied.
- By statute (Sale of Goods Act 1974)
- By Case Law (Agency)
- By Custom
Strict Rules of Interpretation (4 Rules)
1) Intervention – very unusual
2) Extrinsic Evidence
3) Ejusdem generis rule – limited interpretation of subsets with common characteristics
4) Contra proferentum rule – parties cannot benefit from ambiguous terms
Strict rules of Interpretation
Intervention
This is very unusual. The court will not rewrite a contract or change it but rather interpret it.
However it is more than likely to interpret the existing terms in the contract itself.
Strict rules of Interpretation
Extrinsic Evidence
May rely on expert evidence out with the court.
The court can call on extrinsic evidence from an expert from outwith the court. For example an industry expert to explain technical terms or usual industry practice or a translator where a foreign language or word has been used.
Strict rules of Interpretation
Ejusdem generis rule – limited interpretation of subsets with common characteristics
The court is allowed to determine characteristics of similar things and distinguish other characteristics. This must keep in line with the same category for example when referring to domestic animals it can only relate to similar things (not just an animal in general eg lion)
Ejusdem generis rule This relates to the use of “other things”. The things must be in keeping with listed things. For example if something read “cats, dogs and other animals” it would be other domestic animals such as pet rabbits or guinea pigs, not lions and tigers and bears.
Strict rules of Interpretation
Contra proferentum rule – parties cannot benefit from ambiguous terms
Contra preferendum rule This relates to words or phrases that are ambiguous in meaning. If one party tries to rely on a particular meaning the court will consider decide that interpretation.
If there is a term in the contract which isn’t particularly clear the court can interpret & decide was is/isn’t reasonable.
Court Intervention is very unusual however they will interpret the evidence that is there and bring in some implied terms (motivated by statute or custom). Unlikely to change the terms of a contract.
Exclusion Clauses
These are written into contracts to try and limit liability. EG left at your own risk (car parking)
Clarifies that one party is liable for ….. and not liable for ……
A party to a contract may seek to include an exclusion clause, a term that limits or excludes liability. The common law does not really provide much protection against exclusion clauses but this is a relevant case.
Exclusion Clause
Taylor v Glasgow Corporation (1952)
2 Points Established
1 )Where an exclusion clause is printed on a ticket it should be of a type that a reasonable person might expect to form part of the contract’s documentation.
2) Reasonable steps must have been taken to bring the conditions to the notice of the contracting party. (eg public notices are made very clear)
Legislation controlling Exclusion Clauses (2 laws)
1) The Unfair Contract Terms Act 1977 (only applies to businesses)
2) Unfair Terms in Consumer Contracts Regulations 1999
These have been put in place to prevent consumers from being at a disadvantage as a result of an exclusion clause.
The Unfair Contract Terms Act 1977 (only applies to exclusion clauses in businesses)
The Act only applies to businesses, not to anyone acting in a personal or private capacity so includes companies, partnerships, sole traders, local authorities and government departments.
The Act also includes the use of notices that attempt to exclude liability where there is no contract between the person relying on the notice and the injured party but there are exceptions.
Remember Hedley Byrne and Co v Heller and Partners?
The Unfair Contract Terms Act 1977 (only applies to exclusion clauses in businesses)
Uses two types of Control
1) Makes the term Void
2) Applies Reasonableness Test (context-specific what is reasonable)
The Unfair Contract Terms Act 1977 (only applies to exclusion clauses in businesses)
Control
1) Make term void
Makes term Void – Section 16
Any clause where a party attempts to limit responsibility for death/injury
A term will only be upheld only if it is fair and reasonable to incorporate that term into the contract whether express or by reference.
The Unfair Contract Terms Act 1977 (only applies to exclusion clauses in businesses)
Terms Made void (4 terms)
Liability for personal injury or death - s 16 (insurance is required “public liability insurance”)
Guarantees relating to consumer goods - s 19
S19 Manufacturers cannot limit their liability for losses arising from faulty goods
Sale of goods and hire purchase contracts with consumers - s 20
S20 This blocks any attempt to exclude or limit the implied terms of the Sales of Goods Act
Other consumer contracts for the supply of goods - s.21
S21 This is a “catch all” for goods being supplied in other ways than sale or hire purchase e.g. leased goods
Businesses cannot limit their liability for personal injury or death due to faulty goods. The consumer is the individual who will be protected.
The Unfair Contract Terms Act 1977 (only applies to exclusion clauses in businesses)
Subject to Reasonableness Test
S.16 Liability for loss or damage from negligence other than personal injury or death - For example, damage to another person’s property (court will decide what is a reasonable amount to pay for damages)
S.17 Standard form and consumer contracts covered by s.17
S17-S21 It is up to the business to argue that their attempts to limit their liability are reasonable
S.18 Indemnity Clauses in consumer contracts -
These are clauses seeking some compensation for any liability that may occur – again it would be considered whether the clause is reasonable
Section 17&18 argues that businesses’ attempt to limit their liability was reasonable. The business can/should argue that this is reasonable.
Consumer Contracts
This Act is explicit about what types of contracts are considered as consumer
This is not a trading contract but a business may still be considered as a consumer for example buying office furniture for its own use.
not a contract of sale by auction or competitive tender and in which:
(a) one party to the contract deals, and the other party to the contract (‘the consumer’) does not deal or hold himself out as dealing in the course of a business, and
(b) … the goods are of a type ordinarily supplied for private use or consumption.
It’s likely to cover a specific good. Eg loaf of bread
Unfair Contract Terms Act 1977
Reasonable test (S.24) (Checks 4 things)
Has there been an abuse of power?
1) Relative bargaining strength (of both parties)
2) Inducements (given to the individual when going into the contract)
3) Did the customer know of the term? (exclusion clause/attempt of liability)
4) Is compliance with condition practicable (can they do whats asked of them)
The Unfair Terms in Consumer Contracts Regulations 1999
Also known as EC Regulations
This works in tandem with the Unfair Contract Terms Act 1977.
Protecting consumers is the main objective of both legislations.
The Unfair Terms in Consumer Contracts Regulations 1999
This regulation looks at
Most contracts between traders and consumers except:
- Those individually negotiated (eg A special order or purchase)
- Those defining main subject matter of contract; or
- Price
- Included because of mandatory statute (Sale of Goods Act)
The Unfair Terms in Consumer Contracts Regulations 1999
The Central rule - Reg 8(1)
An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.
If it’s unfair it will check the reasonableness
The Unfair Terms in Consumer Contracts Regulations 1999
A contract term is deemed to be unfair when
… 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 looking at good faith we need to look at the 4 reasonableness requirements.
The Unfair Terms in Consumer Contracts Regulations 1999
Determining good Good Faith looks at (similar to reasonable tests in UCTA S.24)
- the strength of the bargaining position
- whether the consumer had an inducement to agree to the term
- whether the goods or services were sold or supplied to the special order of the consumer
- the extent to which the seller or supplier has dealt fairly and equitably with the consumer
Fairness & equitable behaviour is context-specific
Comparison Between UCTA & EC Regulations
UCTA only considers exclusion clauses (attempt to limit liability)
Whereas EC Reg applies to most terms
UCTA looks at consumers & traders. Whereas EC Regs only looks at consumers
UCTA applies Two techniques (void contract terms & reasonable test). EC Regs only considers if a contract term is void or valid.
Both protect consumers and give statutory protection under common law.
