Seminar 4 & 5 - Terms Flashcards
Term: the law: what is term?
Terms are Assertions/promises/undertakings given by each party to the other.
Parties objectively intended/agreed that they have contractual effect.
They forms Part of the contract.
If a term is breached, the party can sue for Breach of Contract.
Differentiate a term from a mere representation
Fundamental Criterion
It depends on whether at time of contract, the parties intended the statement to be affected with contractual liability, objectively ascertained
5 Non-conclusive Guidelines to help determine this intention.
- Time statement Made. Closer = Term.
- Maker’s Emphasis. Greater = Term.
- Maker’s Special Knowledge. Compared to other party. More = Term
- Invitation/Gave opportunity to Verify Truth. Invite = Not Term.
- Contract reduced into Writing. Written = Term.
Presumed that Terms would be included in the written document. If it not included then would not be intended to be a Term.
Parol Evidence Rule
Codified under s93-94 of the Evidence Act
Section 93, Evidence Act:
Terms of a WRITTEN Contract may only be proved by the document itself!
Section 94, Evidence Act:
NO evidence of ORAL statements or WRITTEN materials relating to pre-contractual negotiations or post-contract behavior may be proved to
add to, vary, subtract from or contradict any WRITTEN TERM
Rule only applies if the written contract was objectively intended by parties to represent the entire agreement between them. (This can be stated as a clause in the contract.)
If the Parol Evidence Rule applies, it will then mean that any statement outside of this written contract (the entire agreement) cannot be a term.
Exception of Parol Evidence Rule
• Exception 1: Extrinsic evidence is only admissible where the words of a written contract are ambiguous (more than one meaning).
[S94(f) allows Extrinsic Evidence to help interpret written words in document (explain/illuminate, not contradict or vary)]
• Exception 2: If there was an oral misrepresentation, fraud or mistake, then even if written agreement stated otherwise, oral evidence can be presented. (refer to Chapter 6 – Vitiating Factors: Misrepresentations)
• Exception 3: If evidence show, the presumption that the written document forms the entire contract can be rebutted. (refer to Chapter 5 – Exemption Clauses: Unusual Factors: Collateral Contracts)
Sembcorp Marine Ltd Pte v PPL Holdings Ltd Pte (2013) 3-Step Test.
Terms implied in fact:
(a) Gap arose because the parties did not contemplate (the subject matter of) the gap (No Contemplation at all)
(b) Necessary in business/commercial sense to imply a term in order to give the contract efficacy. (Business Efficacy Test, The Moorcock Principle) [Need some sort of term in this ‘area’ to properly conduct the business.]
(c) What is THE specific term to be implied? This must be one which the parties, having regard to the need for business efficacy, would have responded “Oh, of course!” had the proposed term been put to them at time of the contract. (Officious Bystander Test, Shirlaw v Southern Foundries)
The 3-step test in Sembcorp Marine v PPL Holdings Pte Ltd (2003)
Terms implied in fact: (3 Step Test)
(a) Gap arose because the parties did not contemplate (the subject matter of) the gap (No Contemplation at all)
(b) Necessary in business/commercial sense to imply a term in order to give the contract efficacy. (Business Efficacy Test, The Moorcock Principle) [Need some sort of term in this ‘area’ to properly conduct the business.]
(c) What is THE specific term to be implied? This must be one which the parties, having regard to the need for business efficacy, would have responded “Oh, of course!” had the proposed term been put to them at time of the contract. (Officious Bystander Test, Shirlaw v Southern Foundries
The 3-step test in Sembcorp Marine v PPL Holdings Pte Ltd (2003)
Terms implied in fact: (3 Step Test)
(a) Gap arose because the parties did not contemplate (the subject matter of) the gap (No Contemplation at all)
(b) Necessary in business/commercial sense to imply a term in order to give the contract efficacy. (Business Efficacy Test, The Moorcock Principle) [Need some sort of term in this ‘area’ to properly conduct the business.]
(c) What is THE specific term to be implied? This must be one which the parties, having regard to the need for business efficacy, would have responded “Oh, of course!” had the proposed term been put to them at time of the contract. (Officious Bystander Test)
Steps/Sequence to take under RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007]
Para 113 gives situations in which innocent party may terminate the contract:
- Term breached clearly says innocent party can terminate.
- Party in breach renounces contract. (I will not perform)
- (a) Party has breached a Condition. ( Condition-warranty Approach)
(b) Hongkong Fir Approach, where consequences deprive innocent party of substantially the whole benefit which it was intended that the innocent party should obtain from the contract.
3(a) What is a condition
A term is a condition when intention of the parties to the contract was to designate that term as one that is so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract
1st: Condition-warranty approach to discern intention of Parties
- Language of contract
- Nature & Context
- Prior case precedent
- Term implied by statute –SOGA?
1st discern the intention of parties using Condition-warranty approach
- Language of contract
- Nature & Context
- Prior case precedent
- Term implied by statute –SOGA?
2nd - Hong Kong Fir approach
Focus on actual nature & consequence of breach to decide on remedies.
Did the breach deprive innocent party of substantially the whole benefit under the contract?
3(b) What is an Innominate Term?
Are those which are too complicated to pigeon-hole easily under the condition-warranty dichotomy.
Typically, a breach of such term can often result in trivial or serious consequences
Exclusion Clause: The law
EC are Terms of contract that EXCLUDE or LIMIT liability of a contracting party.
Before the party in breach can rely on EC, 4 factors need to be looked at:
To ensure that the EC is valid, all of the following 4 points must be established:
- Incorporation – the clause must be incorporated into the contract
- Construction – The clause, properly construed, must cover the loss of injury, which occurred
- Unusual Factors – There must not be any extraordinary facts in the case which prevents the operation of the clause
- UCTA – The clause must not contravene the UCTA
Incorporation
- By Signature:
A person who has signed a contract is bound by all the terms contained in it, regardless whether he has read it or not. L’Estrange v Graucob - By Reasonably Sufficient Notice:
In Oral or Unsigned contract, an EC is incorporated if:
A. Notice of EC is given BEFORE or AT THE TIME the contract was made: Olley v Marlborough Court. Wall of hotel room. X
B. On document reasonable man would expect to find terms of contract. Chapelton v Barry UDC. Deck-chair ticket. X
C. Adequate notice is given, i.e. through Reasonable steps to bring EC to attention of the other party e.g. legible & conspicuous notices. (Effect of Clause relevant)
Holland Leedon v C & P. (Did not point to EC.) - By Previous course of dealings.
If there were previous course of dealings between the parties that include an EC, was consistently applied, same terms, the parties agree that the current contract is based on previous one “as per the usual terms and conditions”, then it can be incorporated
Construction
Once the clause has been incorporated, the next step is to access the construction of the clause. To ensure the effectiveness of the EC, its construction must be determined.
- If the EC does not cover the liability in question (aka it must be clear and precise), it cannot be used to exclude the liability.
1/ Contra Proferentem Rule (favours the non-maker of the clause)
According to the contra proferentem rule, wherever there is any ambiguity (more than one meaning) in interpreting a clause, the construction to be adopted is the one which is the least favourable to the person who put forward the clause / the excluder.
- Special kind of ambiguity: For exclusion of liability due to the negligence of party in breach, EC will not cover liability due to Tortious negligence unless clear (or “wide”) words are used to state this in the EC. (For example, “any loss, damage or personal injury, howsoever caused….”)
If vague/ambiguous it will be taken to cover only Contractual liability.
2/ Main Purpose Rule (breach of condition = generally EC invalid)
EC is ineffective when there is a fundamental breach of contract. EC defeats the main purpose of the contract, unless EC uses clear and unambiguous terms.
Exception: If the words of the EC are clear and unambiguous, it can be construed as effective, even the case is a fundamental breach. If so, the EC can be enforced in Court.
Unfair Contract Term Act UCTA
- Does UCTA even apply to the situation?
- Section 1(3): In the case of both contract and tort, sections2 to 7 apply ….only to business liability, that is liability for breach of obligations or duties arising from things done …..in the course of a business…….
- Section 14:…… “business” includes a profession and the activities of any Government department or local or public authority… - Is the situation negligence liability?
* What amounts to “negligence”?
- Section 1(1): For the purposes of this Part, “negligence” means the breach —
(a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; or
(b) of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty)
* If the liability in question is due to negligence, then section 2 needs to be looked at.
- Section 2(1) : A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.
(EC totally Invalid: Negligence resulting in injury or death)
- Section 2(2): In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.
(EC valid if reasonable: Negligence resulting in other loss) - There is contractual breach liability?
if Yes then section 3 needs to be looked at.
- Section 3(1): This section applies as between contracting parties where one of them deals as consumer or on the other’s written standard terms of business.
- Section 12(1): A party to a contract “deals as consumer” in relation to another party if —
(a) he neither makes the contract in the course of a business nor holds himself out as doing so;
(b) the other party does make the contract in the course of a business; and
- Section 3(2):
As against that party, the other cannot by reference to any contract term where Consumer/Standard Form requirement met
EC to - Limit liability for the breach
- Allow substantially different Performance
- Allow No Performance
Except in so far as (in any of the cases mentioned in this subsection) the contract term satisfies the requirement of reasonableness
General Reasonableness Test (Paramount test):
- Section 11(5): It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does. (means the party in breach)
- Paramount Test:
Section 11(1): In relation to a contract term, the requirement of reasonableness….is that the term shall have been a fair and reasonable one … having regard to the circumstances which were
+ known to, or
+ ought reasonably to have been known to or
+ in the contemplation of the parties
when the contract was made
Section 11(2): Guidelines for Reasonableness Test
Guidelines for Reasonableness Test
The Court will have to determine reasonableness as specified in the Second Schedule under s11(2) of UCTA.
(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the special order of the customer
