lec –winter 2016sydney.edu.au/lec/subjects/contracts/winter 2016/lec - 2016... · done enough to...

LAW OF CONTRACT

LEC – Winter 2016

Lecture 5Aims and Objectives

At the end of this lecture students should understand the following:

• the circumstances in which pre-contractual statements amount to terms of a contract;

• the formation of collateral contracts;

• the principles for the incorporation of contractual terms; and

• the principles by which terms are implied into a contract.

• the ‘exceptions’ by which a person not a party to a contract can take enforcement action in relation to a contractual promise for his or her benefit.

Lecture 5Terms of a Contract

(a) Express Terms

• Text: Radan & Gooley, Chapter 10

• This topic is concerned with establishing the express terms of the contract between the parties to the contract. It needs to be established whether the parties intended pre-contractual statements to be express terms and were not merely representations. Alternatively such statements may amount to collateral contracts – contracts that are collateral to the main contract between the parties. Even in situations where one party intends a statement to be a part of the contract, questions arise as to whether that party has done enough to have the term incorporated into the contract.

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

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

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

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

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

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

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

Lecture 5Terms of a Contract

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

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

• D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749

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

(b) Implied Terms

• Text: Radan & Gooley, Chapter 11

• Terms may also arise by implication, either under common law principles or pursuant to statute. Furthermore, terms can also be implied because of the existence of a custom in a particular industry, trade or locality.

• *Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (R&G(C) [11.2])

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

(R&G(C) [11.3])

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

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

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

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

Express Terms• Having established that an agreement is in place, we need to then look

at what the terms of that agreement are: ‘What are the contents of the terms of the contract, and what do they mean?’

• Express terms are those that are expressly stated or agreed upon by the parties. They are explicitly included in the contract by the parties.

• In the course of negotiations, the parties will make various statements to each other. The question will often arise whether these statements form part of the agreement between the parties.

• Express terms are statements that are promissory in nature and give rise to contractual obligations because they indicate the party’s obligations under the contract.

• They can be the terms of the written agreement, but also oral representations made during negotiations.

Express Terms• Explicit terms:

– Is the statement a term or mere representation?

– Must be promissory

Express Terms• There are several ways in which terms may be incorporated into a contract:

– By signature. Generally, a party signing a contractual document is indicating that she has read and understood the document and consented to its terms. This fundamental rule is known as the 'signature‘ rule (see

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

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

– Terms may also be incorporated into a contract by notice. This is especially important in cases involving unsigned documents or signs, which affect many transactions involving travel or entry to premises. It is often the case that one party will seek to rely on an exclusion or limitation clause. In order to hold that the clause is incorporated as an express term, courts will require evidence that notice of the term has been given by the party seeking to rely on it before the contract was formed. They will also require that the notice be given in a way that may be considered reasonable (actual knowledge is also sufficient) .

Express Terms

– Where contracting parties have an ongoing commercial relationship, it is often the case that they use their own documents and forms which provide conformation or evidence of their agreement. If there is an argument as to the effect of these, one party may argue that they have been incorporated as express terms by prior dealings between the parties.

– Any question of incorporation of terms in written documents must take account of the parol evidence rule. This fundamental rule states that, where a contract is in writing, evidence cannot be introduced that will have varying the language of the written contract. But the courts have recognised important exceptions, one of which is a priorI

– Collateral contract. An oral promise made be written contract may be enforceable if the signing of the contract provides consideration for the promise. For a collateral contract to be enforceable, it must be promissory in nature and must not be inconsistent with any express term of the written contract.

Express TermsExpress terms v Representations

• Express terms are statements that are promissory in nature and give rise to and give rise to obligations - because they tell the parties what they need to do to perform the contract.

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

• There are also other specialised, ‘non-promissory’ terms that can appear in a contract, such as: definition, interpretation and other ‘boilerplate’ clauses. These assist in interpretation of the agreement and cannot be ‘breached’ per say.


• X and Y enter into lengthy negotiations for the sale of X’s Ford Territory to Y for $5,000. During the negotiations, X says that it is a 1996 model. After the contract is complete Y discovers that it is a 1994 model Territory and therefore worth less a than a 1996 model.

• Is the statement by X that it was a 1996 model a term of the agreement (with the consequence that X is in breach)? Therefore, did X promise to sell a 1996 Ford Territory, or just a Ford Territory? If it’s the latter, there can be no breach of the contract.


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

• Oakes listed his house for sale. The agent gave him a listing form with a list of features of the property. One feature was whether the property had a sewerage connection and the form said, “septic/sewer”. Oakes crossed out “septic” and put a ditto remark next to the word sewer. He then signed the form. The agent then added the word “yes” in the belief that the property had a sewerage connection. It was on a septic tank (although a sewer connection was available). Ellulsinspected and agreed to pay £11,300. and signed a sale note, ‘subject to vendor’s approval’. Oakes never signed the sale note, but the conveyance was completed.

• When they realised that it was not connected to the sewer, the Elluls sued foo breach of warranty and negligent misrepresentation.

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



• Held:

1. Breach of warranty, because the term was a warranty forming part of the agreement. The remedy was damages in the amount of the cost of connecting the house to the sewer.

2. The negligent misrepresentation action failed, because they failed to prove damage, i.e. did not prove that the house was less than the amount that they paid for it.



• Oakes made the representation through the Multiple Listings Bureau to induce a purchaser [the plaintiffs] to buy his property, and he succeeded in doing so. This provided a prima facie case that it was a term that he had to displace.

• The various factors which have to be considered, include:

– The time elapsed between the making of the representation and the final manifestation of the agreement. The longer the interval, the more likely that it is a representation.

– The importance of the statement in the mind of the parties: The more important the statement, the more likely that it is to be a term.



– Whether the statement was included or omitted when the agreement was embodied in a more formal written document. If it was omitted, it is more likely that it was a representation only.

– Whether the maker of the statement was, vis-à-vis the other party, in a better position to know the ascertain the accuracy of the statement. If so, it is more likely to be a term.

• But these are guides or inconclusive factors only. The test is ultimately:

‘Whether on the totality of the evidence, should the person making the statement, be taken to have warranted its accuracy. In other words, did he promise to make it good.’ [388]



• Or put another way: ‘Was there evidence of an intention by one or both of the parties that there should be a contractual liability in respect of the accuracy of the statement.’ at [387].

• It is not a question of ‘what he intended or any consensus of minds, but of what effect the statement would have on the mind of a reasonable person so as to make him think that such a representation was contractual in nature, in other words that this would form part of the basis of the contract hereafter to be entered into.’ [387]



• The intention is to be determined objectively by an analysis of ‘what was said or done, having regard to the circumstances in which the statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties’

– Ermogenous v Greek Orthodox Community if SA Inc (2002) 209 CLR 95, 105 – 106.


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

• In 1955 Williams traded in his Morris (which he thought to be a 1948 model) for a new car at the dealership of Oscar Chess. It was bought in 1954 and the rego papers said that it was first registered in 1948. The OCL employee also though that it was a 1948 and checked the registration papers and a guidebook. They gave Williams a trade-in of £290. A few months later OCL checked the chassis and engine and found out that it was a 1939 Morris. OCL sued Williams on the basis that they would have only paid £175 if they knew the true age.

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



• The majority held that the statement about the car’s age was not a contractual term but an innocent misrepresentation.

• Both parties assumed that the car was a 1948 model and this assumption was fundamental to the contract. But this alone is not enough (but remember factors from Ellul & Ellul v Oakes).

• This could have been a case of common mistake (discussed in week 7), allowing the buyer to set aside the contract as a whole in equity (when Solle v Butcher was still good law – now the position is different – see wk 7). But his claim was too late, and his only remedy now was damages for breach of a warranty.



• ‘It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended. That is a mistakeIThe intention of the parties can only be ascertained from the totality of the evidenceIThe question of whether a warranty was intended depends upon the conduct of the parties, on their words and behaviour, rather than their thoughts.’ [327]

• If a seller states a fact which is or should be within her knowledge and is not in the buyer’s knowledge, and she intend that the buyer should act on it (and the buyer does so), then it is easy to infer a warranty.

• The same applies if the seller makes a promise about something that should be within her control.



• BUT, if the seller, when he states a fact, makes it clear that he has no knowledge of his own and is passing on/relying on information that he has gotten elsewhere, then it is not so easy to imply a warranty.

• Here it must have been obvious that to both parties that Williams had no personal knowledge of the correct year of the car and that he was relying on the registration book (he was not the first or even second owner).

• It is unlikely that a person in that position would warrant the year of manufacture. An intelligent bystander would say that Williams did not intend to bind himself.

• He had no better a source of knowledge: the log book.



• The majority held that is a difference between saying:

– ‘I believe the car is a 1948 Morris. Here is the registration to prove it.’

– ‘I guarantee that is a 1948 Morris. This is borne out by the rego book. But you need not rely upon that; I given you my personal guarantee it is.’



• Contrast that decision with Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65.

– DB purchased a car from HS. Hs said that the car had only travelled 20,000 miles since having the gearbox replaced. That was false. DB sued for damages for breach of the agreement.

– The C of A held that this was a term of the agreement. The Court ruled that if the representation is made in the course of dealings for the very purpose of inducing the other party to enter into the agreement, that creates a rebuttable inference that it was intended as a term, which the maker can rebut.

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

– This rule (of rebuttable presumption) is of doubtful authority in Australia (see JJ Savage and Sons Pty Ltd v Blakney (1970) 119 CLR 435, 442.

Express TermsThe effect of signing a contract

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

• Alphafarm bought a flu vaccine from Ebos. It was to be stored after importation and then transported to the customers by Toll. On the front of the document, above the signature mark, it said ‘Please read conditions of contract (overleaf) prior to signing’. Alphafarm’s agent did not read the conditions or discuss them. One of the included terms was an exclusion clause that prevented liability for damage to the vaccine.

• The vaccine was destroyed in transit (because stored at too low a temperature).

• Did the exclusion clause form part of the contract?



• High Court of Australia: YES

• Signing a document which is known and intended to affect legal relations is an act which ordinarily conveys a representation to a reasonable reader that the signing party has read and approved the contents of the document

• This representation is even stronger when the signature appears below a request to read the document before signing it.

• Subject to fraud or some other vitiating circumstances, it will be binding upon the signing party, whether she has read it or not.



• This therefore applies when a party sends an illiterate agent to sign on his behalf.

• If it has been signed without a vitiating factor, does not require the other party to show that “due notice has been given” of the relevant terms. The signing party is bound by the document and it is irrelevant whether he has read the terms. Ticket case principles do not apply here.

• This principle raises tension with the doctrine of ‘non est factum’ (discussed in week 8).


• Signing a document that refers to terms of a contract which are contained in a separate document will generally result in those terms being incorporated into the contract: Ange v First East Auction Holdings Pty Ltd (2011) 284 ALR 638.

• But if the terms in the separate document are unusual, there may be an argument may be required for incorporation, depending upon the circumstances.



• Exceptions:

– Misrepresentation

– Mistake

– Duress

– Contracts Review Act 1980 (NSW)

– Undue influence

– Unconscionable conduct ( including non est factum)

Express TermsMisrepresentation and the signature rule

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

• Curtis took a white satin dress for chemical cleaning. She was asked to sign a piece of paper called ‘receipt’ by an employee. When she asked why, she was told that the shop did not accept certain types of liability, including damage to sequins and beads on the dress. She signed. Later she read the clause, it excluded liability ‘for damage howsoever arising’

• When returned, the dress was stained. The defendant denied negligence and relied upon the exclusion clause.

• Could the exclusion clause be enforced in light of the misrepresentation made by the defendant’s employee about what was excluded?



• NO.

• Affirms the signature rule and says that the signature does not bind in case of fraud or misrepresentation. What is a sufficient misrepresentation?

• Behaviour (words or conduct) is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough (whether fraudulent or innocent).

• If a party puts forward a printed form for signature, a failure to draw attention to the existence or the extent may in some circumstances convey the impression that there is no exclusion at all [!!]



• Here failing to draw attention to the width of the exemption clause, the assistant created the false impression that it related only to beads and sequins.

• But even if the assistant had said nothing, this may have conveyed the impression that there was no exclusion clause. The cleaners may not have been better off handing over the document without asking her to sign it? - How does this work with the signature rule?

• Also note that it has been argued that in relation to on-line forms, clicking in the box ‘I agree’ is not included within the signature rule – See (R&G [10.36])

Express TermsIncorporation of terms by reasonable notice

• Although reasonable notice is not a factor in cases to which the signature rule applies, it is a crucial factor in cases of unsigned documents or writing on signs or tickets which are alleged to form part of the contract.

• In such cases the clauses set out in the documents will not be included in as express terms of the contract unless reasonable notice of them was given to the party to be bound.

• The party affected by sufficient notice, even if not actually aware of the term in question, is regarded as having constructive knowledge of it: HIH Casualty & General Insurance Ltd v New Hampshire Insurance Company

[2001] Lloyd’s Rep 161 at 199.

• Two issues:

– Reasonableness of the notice

– Timing of the notice

Express TermsIncorporation of terms by reasonable notice - reasonableness

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

• Parker and Gabell left their bags in the cloak rooms of the defendant’s railway station. Parker paid his money and received a ticket that contained a date and number on one side and some writing on the other. He was aware of the writing but did not read it. The writing included an exclusion clause limiting liability for packages to £10.

• When they returned for their bags, they couldn’t be found. The company relied on the exemption clause to avoid liability.

• On appeal: can a person be bound by the terms of an exemption clause if she has not read the clause but had been aware of writing of which the clause formed a part?



• Held: The majority ordered a new trial.

1. If in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them and does not know what they are.

2. If, on the other hand, the person receiving the ticket does not know that there is any writing upon the back of the ticket, he is not bound by a condition printed on the back.

But here, it was in between those two scenarios!



• Here, they did know there was writing, but did not know that they were terms of the agreement and therefore did not read the writingI.

• In the absence of actual knowledge, the delivery of the document or thing (or the placement of the sign) must be done in such a way that the other party can be taken to have been given reasonable notice of it.

• In this context, in the case of documents, a distinction can sometimes be drawn between documents that are in their nature contractual (bills of lading e.t.c.) and those that are not (tickets, receipts, vouchers).



• In the first case, mere delivery may be good enough for reasonable notice

• In the second, merely handing it over is not enough. The party relying upon it must take reasonable steps to draw the recipient’s attention to it.

• Here it was referred back to the jury to decide whether the delivering of the ticket to the plaintiff was in such a manner that, seeing that there was writing upon it, it was reasonable notice that the writing contained conditions,


Causer v Browne [1952] VLR 1 (R&G [10.44])

• Causer had her dress dry-cleaned at Browne’s dry-cleaning business. When the dress was left with Browne, a docket was handed over which contained an exclusion clause at the bottom. The dress was damaged and Browne sought to rely upon the exclusion.

• The Court held that the clause was not a term of the agreement. It was merely a voucher to be produced when collecting goods, and would not be seen by a reasonable per son as contractual in nature. Because no steps were taken to draw Causer’s attention to the exclusion clause, it was held not to be part of the contract.

• What steps are needed to bring it to the attention of the purchaser? –

– It depends upon the circumstances and the nature of the clause: Oceanic Sun Line Shipping v Fay

Express TermsIncorporation of terms by reasonable notice - timing

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

• Thornton parked his car in a multiple storey car park to which he had not been before. At the front of the car park was a large sign with certain information, including the name of the car park, prices and the words ‘All cars parked at owner's risk'.

• When he approached the entrance, a ticket was dispensed from a machine. The ticket, which he did not read, contained information about the time of issue, payment details and the following words in small print: 'This ticket is issued subject to the conditions of issue as displayed on the

premises.’



• Inside the premises there was a pillar opposite the ticket machine on which certain conditions displayed, including a term exempting the car park for liability for any physical injury to patrons.

• Thornton was seriously injured in the grounds of the car park. He sued to recover damages for his injuries on the basis of the car park's negligence. Was the reference, on the ticket given to Thornton, to conditions of entry displayed inside the car park, sufficient notice for the exemption clause to be incorporated in the contract as one of its terms?



• HELD: NO

• He is not bound by terms on the ticket if they are different to those on the notice, because they ‘come too late’. The ticket is no more than a voucher or receipt for the money that has been paid on terms which have been offered and accepted before the ticket is issued.

• The offer was made by the sign at the front and accepted when he entered the car park and took the ticket. It was then concluded. He could assume that the issue of the ticket on ‘conditions’ mean that they were merely regulatory unless the exclusion clause was specifically drawn to his attention.



• The carpark did not do what was reasonably sufficient to give him notice of the exemption clause.

• Before it can be said that a condition has been fairly brought to the notice of a party, there must be clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury was-sought to be included.

‘I certainly would not accept that the position has been reached today in which it is to be assumed as a matter of general knowledge, custom, practice, or whatever is the phrase that is chosen to describe it, that when one is invited to go upon the property of another for such purpose as garaging a car, a contractual tern is normally included that if one suffers any injury on the premises as a result of negligence on the part of the occupiers of the premises they shall not be liable.’

Express TermsIncorporation on the basis of prior dealings

• This is ultimately a question of reasonableness It will often depend upon the number and consistency of past dealings. [See R&G 10.53]

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

– e.g. if there is an exclusion clause in a document that is provided after a contract if formed (such as a ticket or a sign) and therefore that document does not for part of the agreement itself, does the fact that this document and its terms have been provided (after the fact) to the party on a number of occasions throughout a course of dealings? (see [R&G 10.54 – 10.58])e.g.:

• Henry Kendall v William Lillico & Sons Ltd [1969] 2 AC 31 – Doesn’t matter

• DJ Hill v Walter H Wright – Does matter. Not incorporated


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

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

• After each job, La Rosa provided an invoice showing details and stating that the work was done subject to terms and conditions printed on the reverse side, one of which purported to exclude La Rosa's liability for any loss or damage of property and/or goods of the client.

• Rosa drove his semi-trailer around a roundabout too fast and a drill rig he was carrying fell off the vehicle and was damaged. When he was sued or the damage, La Rosa argued the exclusion clause protected him from liability as it had become part of the contract through a consistent course of prior dealings between the parties.

• Was the exclusion incorporated as an express term?



• HELD: NO.

‘It will be a question of fact and degree whether in a particular case, the parties, by their conduct, have incorporated a term into their contract by a previous course of dealings. Each case turns on its own facts and circumstances. Factors of relevance in determining whether the alleged term was incorporated include the number of prior dealings, how recent they were and the consistency in the prior dealings and the dealing in question (for example, the similarity between the subject matter, of the dealings and the manner in which the dealings were entered into or concluded). This is not, of course, an exhaustive statement of relevant factors.’ [62]

• A term may be incorporated by a previous course of dealings without it being essential that the party relying it to establish that the other party had actual knowledge of it.



• It is not an essential pre-condition to the incorporation of a term by a previous course of dealings that:

a) any document containing the relevant term have been sent or given to the party sought to be bound at or prior to the formation of each of the contracts (or one or more of them) constituting the previous course of dealings; or

b) the relevant term has been incorporated in at least one of the contracts constituting the previous course of dealings.

• BUT, the time when any document was in fact given or sent to the party sought to be bound, and that party's degree of knowledge (if any) of the document or the alleged term, will be relevant in determining whether it was given reasonable notice of the alleged term and, if so, what the party seeking to rely on the alleged term was reasonably entitled to conclude from the actions or conduct of the other party.



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

• Other course of dealings were not sufficiently frequent.

• There was no evidence of actual knowledge of the term or had read them (not essential, but a relevant factor).

Express TermsParol Evidence Rule

• (parol = verbal expressions or words)

• The purpose of the parol evidence rule is to exclude extrinsic evidence (evidence beyond the contents of the contractual materials themselves), such as evidence of pre and post contractual negotiations, that will have the effect of adding to, subtracting from or varying or qualifying the language of an entirely written contract.

1. Extrinsic evidence of prior negotiations is excluded for the interpretation of contractual terms.

2. Extrinsic evidence of post contractual conduct is excluded in interpretation of contractual terms.

Express TermsThe Parol Evidence Rule

• Where the contract is wholly in writing, or intended to be wholly in writing, the express terms of that agreement are generally the only terms that are recorded in the written contract.

• Subject to an exception, a party cannot include anything previously said or written before the contract was signed. Two issues arise:

– What is meant by extrinsic evidence?

• All forms of extrinsic evidence

– Only applied to written agreements.

• Therefore not partially oral/partially written agreements.

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

Express TermsThe parol evidence rule

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

• Heath entered into several contracts with the SRA to construct hoardings on SRA property for the display of advertising material. Two five-year contracts contained a clause to the effect that the SRA could terminate the contract at any time upon the giving one month's notice. When questioned about the likelihood of the SRA invoking the clause, the managing director alleged he was told that the only time the clause is ever invoked is for non-payment of rent or if somebody wants to advertise objectionable advertising content. A separate representation was allegedly made to the effect that the termination provision applied only to hoardings which belonged to the SRA not ones on rented land.

• When the SRA terminated the agreement because of a ministerial policy to phase out cigarette advertising, Heath claimed the pre-contractual assurances gave rise to an estoppel or amounted to a collateral contract on the basis of which the agreements had been executed.



• HELD: Comments of SRA not sufficient to warrant estoppel or collateral contract.

• McHugh JA (on the parol evidence rule):

• It has no operation until it is first determined that the terms of the agreement are wholly contained in writing. The tendering of oral evidence to prove a contractual term, therefore, cannot be excluded until it is determined that any terms in writing record the whole of the parties' agreement.

• The correct rule is that the existence of writing which appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in writing.



“the mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed. If that assertion is proved, evidence of the oral terms cannot be excluded because the court will, by definition, have found that the contractual terms are partly to be found in what was agreed orally as well as the document in question. No parol evidence rule could apply. On the other hand, if that assertion is not proved, there can be no place for a parol evidence rule because the court will have found that all the terms of the contract were set out in the document in question and, by implication, will thereby have excluded evidence of terms being found elsewhere.”

The Law Commission

Express TermsCollateral contracts

• A agrees to lease his farm to B and a detailed written lease agreement is prepared by A for the parties to sign. The written lease agreement covers all the terms one would generally expect to find in a contract of this type. B is in agreement with all of its terms. However, before B signs the lease, he seeks an assurance from A that the drainage system on the farm is in good working order. The written agreement prepared by A is silent on this matter. A promises to B that the drainage system is in excellent condition. B signs the lease but later discovers that the drainage system is not in good working order.

• Can B sue A for breach of contract in relation to the fact that the drainage system is not working as promised by A? In other words, does the oral promise made by A about the drainage system amount to an express term of the contract between A and B, notwithstanding that the promise does not appeal in the written lease?


• This example raises the issue of collateral contracts. A's assurance as to the condition of the drains could amount to a contract that is separate and distinct from the written lease.

• The separate contract is referred to as a collateral contract.

• The court has held in similar circumstances that that the written lease was an entirely a written contract to which the parol evidence rule applied, but the assurance about the condition of the drains constituted a collateral contract. The collateral contract in the scenario consists of one express term, namely the promise by A that the drains on the farm are in excellent condition. The consideration for A's promise is entry into the main contract by B - in this case the formation of the written lease. If the main contract is one for which there exists a statutory requirement of writing, there is no need for the collateral contract to also be in writing.


• For a statement to amount to an independent contract that is collateral to the 'main‘ written contract between the parties, two elements must be satisfied:

1. that the statement is promissory in nature; and

2. that there is no inconsistency between the main contract and the alleged collateral contract.

• However, courts may be reluctant to find a collateral contract if the statement alleged to be a collateral contract is one that you would expect to find its place naturally in the principal contract: Shepperd v Council for the Municipality of Ryde (1952) 85 CLR 1, 12.


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

• During negotiations with the Savage company about the construction of a motor boat, Blakney sought advice on the type of engine that could be installed. In correspondence between them, the company manager recommended an engine that had an ‘estimated’ speed of 15 mph. When Blakney placed his order, which included the recommended engine, he signed a written agreement that did not refer to the boat's speed.

• After construction and purchase, the boat could only reached 12 mph, Blakney sued, claiming that the reference in correspondence to the boat's speed capacity was a condition or warranty of the contract or that it amounted to a collateral warranty.

• Was it a collateral contract?



• HELD: NO.

• Was there a promise that the boat would attain that speed? The statement has to be promissory and not merely representational.

• On receipt of the letter there were three courses open to Blakney:

1. He could have required speed to be inserted in the specification as a condition of the contract;

2. He could have sought a promise however expressed, whether as an assurance, guarantee, promise or otherwise - that the boat would attain the speed as a prerequisite to his ordering the boat.



3. He could be content to form his own judgment as to the suitable power unit for the boat relying upon the opinion of Savage.

Only the second course would give rise to a collateral warranty. Here there was nothing in the evidence to support the view Blakney took either the first or second of these courses.

Express TermsCollateral contracts and the need for consistency

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

• Spencer sub-leased premises to Hoyts for a period of four years. It was a term of the sub-lease that Spencer had the right to terminate the lease at by giving at least four weeks' notice in writing. At the time the sub-lease was executed, Spencer assured Hoyts that he would not terminate unless he was required to do so by the lessor under the head lease.

• However, at one point during the term, Spencer did give notice in writing for Hoyt's to vacate even though no direction had been given by the lessor. After Hoyt's left, it sued on the grounds that a collateral contract had been made when Spencer promised he would not terminate the sub-lease unless required to do so under the head lease. They argued the consideration for the collateral contract was their entry into the sub-lease.

• Could a promise that contradicted an express clause in the agreement support collateral contract?



• Held: NO

• The main contract must be taken as is.

“The truth is that a collateral contract, which may be either antecedent or contemporaneous, being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequentlywhere the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the benefit of the main contract as made.”

• Here the collateral contract is clearly inconsistent with the main agreement.



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

Implied Terms• Implied terms can be categorised as follows:

1. terms implied to give efficacy to a particular contract based upon the facts and circumstances of a particular case;

2. terms which the law finds in a certain class of contract, either pursuant to the common law or statute, although those terms may not find specific expression in the contractual statements or documents of the parties; and

3. terms implied into a contract to give effect to a notorious custom or usage in a particular trade, industry or locality.

• Terms implied in fact or by custom can be described as sub-categories of the broader category of terms which are implied into a contract to give effect to the presumed intentions of the parties. Terms implied by law do not depend on the intentions of the parties and are implied on more general considerations.

Implied TermsImplication of terms on the facts of the case

• The implication of such terms is designed to give effect to the presumed intention of the parties.

• The principles to be applied depend upon whether the contract is formal or informal.

• Formal contracts

• In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 ,Lord Simon in the Privy Council listed the five requirements necessary to be satisfied as follows:

Implied TermsImplication of terms on the facts of the case

1. It must be reasonable and equitable.

2. It must be necessary to give business efficacy to the contract, so

that no term will be implied if the contract is effective without it.

3. It must be so obvious that it goes without saying.

4. It must be capable of clear expression.

5. It must not contradict any express term of the contract.

Implied Terms

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

(R&G(C) [11.2])

• Lord Hoffman said that this list is best regarded, not as a series of independent tests, which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means.

[T]he approach adopted in the BP Refinery case should not necessarily be regarded as a cumulative list of elements all of which must be satisfied before a term can be implied. However, each element is a useful indicator relevant to the ultimate question of what a reasonable person would have understood the contract to mean. This is construed objectively by a notional reasonable person with knowledge of the relevant background.

Hickman v Turn and Wave Ltd [2011] 3 NZLR 318

Implied Terms

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 33 (R&G(C) [11.3])

• Codelfa agreed to build a part of the Eastern Suburbs rail line. There was a fixed agreement that Codelkfa would finish the work in 130 weeks for a fixed price and would bear the cost of any difficulties or delays. It anticipated work being done in a 3 shifts per day, 6 days per week, plus some Sunday work.

• The SRA had a statutory immunity from nuisance suits and Codelfamistakenly believed that this covered it.

• The work schedule was blocked in the Supreme Court by a nuisance action brought by locals against Codelfa, and it could only work 2 shifts per day (not at night) and not on Sundays.

• Codelfa argued that there was there an implied term in the contract to protect Codelfa economically from the injunctions regarding work hours.

The Meaning of TermsCodelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 33 (R&G(C) [11.3])

• Arbitrator said ‘Yes’.

• Supreme Court also said ‘Yes’ but changed the term.

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

• Codelfa went to the High Court of Australia because it was unhappy with the new form of the term and wanted to improve it. The SRA wanted to get rid of it.

Implied Terms


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

Obviousness

• Would the parties have readily agreed on the proposed implied term if it had been suggested to them I the course of their negotiations? - The ‘officious bystander test’

• Here could not be said that ‘it goes without saying’ that this terms is what the parties intended to insert to in anticipation of the injunction.

• This overlaps with business efficacy.

Implied Terms


‘[T]here remains an insurmountable problem in saying that it goes without saying that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal or that implied by the arbitrator [and by the Supreme Court]. l doubt whether the fiction of treating the parties as reasonable and fair makes the problem any the less difficult. This is not a case in which [356] an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution.’

Problems• Helen owns a suburban parking station. At the entrance to the station, an

automatic machine issues customers a ticket as they drive in and printed on the front is “Customers are kindly requested to note that vehicles are parked only subject to the conditions displayed on the premises.” The conditions are displayed on a notice attached to the wall of the office to which customers go to pay the parking fees prior to leaving the parking station. The notice reads:

Conditions of Parking

The station is open from 6am to 12pm midnight. Charges are $2 per hour or part thereof; for vehicles left overnight an additional fee of $200 is payable. Helen regrets that she cannot accept any responsibility for any harm, loss or damage whatsoever.

• When customers pay the parking fees they are given a document headed “Receipt” which indicates the amount paid and also repeats the words of the notice on the wall.

• Andrew, Joan and Peter all recently parked their cars in the parking station. They had each used the station about once a month over the past year, but had never read the ticket, the notice or the receipt (all of which have been used in exactly the same form throughout the period).

Problems

• Andrew’s car was stolen when a thief persuaded Helen that he was the owner of the car and had lost his ticket, and Helen allowed him to take the car away. The car has not been recovered.

• When Joan came to collect her car, Helen was assisting another customer who had trouble parking his car. Helen carelessly drove over Joan’s foot causing her considerable injury.

• Peter had too much to drink after work at the pub, forgot about his car until the station had closed and was outraged the next morning when the cashier demanded payment of $200 in addition to the normal parking fee. He refused to pay the $200.

• Helen is threatening to sue Peter for $200. Andrew is threatening to sue Helen for the value of his car and Joan is threatening to sue Helen for compensation for her injuries.

What would your advice be to all the parties?

Problems• John owned a truck and operated a business carrying goods within the Sydney

metropolitan area. He sometimes drove the truck himself but often employed casual drivers to do this work.

• Tom operated a small business manufacturing high quality clothing. In October he needed several cartons containing clothing to be delivered to a customer and, as the carrier he usually used could not do the job for several days, he telephoned John who agreed to deliver the goods that day at a price of $50. On that day John employed Bill (who had not worked for him before) to drive the truck. When he arrived at Tom’s premises to pick up the cartons, Bill handed to Tom a printed document headed ‘Invoice’. It contained handwritten details of Tom’s name and address and that of the firm to which the cartons were to be delivered, and of the price for the job. The invoice contained a printed statement that the price must be paid within 7 days and also contained, at the bottom, the following printed statement:

Important

All goods are accepted on the basis that the carrier is not liable for more than two times the contract price in the event of any loss or damage whatsoever. The benefit of this clause extends to all servants, agents and sub-contractors of the carrier, for

whom the carrier contracts as agent.

Problems

• Tom had dealt with John 10 times over the previous three years. On each occasion the agreement for the job was made over the telephone and the driver (who was sometimes John but often another driver) handed an invoice to Tom when the goods were picked up. On each occasion the invoice was (except for the handwritten details) identical to that handed over on this occasion. On none of these occasions did Tom read the notice at the bottom of the invoice.

• The goods, valued at $5,000 were stolen when Bill stopped at a hotel for a drink while on the way to the destination.

• John has paid Tom $100 but refuses to pay any more. Bill refuses to pay anything to Tom.

Advise Tom.

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