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Contracts 200011

Terms of Contracts: Incorporation of Terms, Express Terms, and Implied

TermsLecturer: Francois Brun

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Overview of Contractual Terms

• L’Estrange v F Graucob Ltd [1934] 2 KB 394 [10.46C]

• Oscar Chess Ltd v Williams [1957] 1 WLR 370 [10.30C]

• Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 [10.10C]

• JJ Savage & Sons P/L v Blakney (1970) 119 CLR 435 [10.06C]

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Overview (cont.)

• Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 [11.09], [11.10]

• Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165 [10.71]

• Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 [10.73]

• Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 [10.55C]

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Overview (cont.)

• Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197

• Baltic Shipping Co v Dillon (1993) 176 CLR 344 [34.25]

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

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Overview (cont.)

• Codelfa Construction v State Rail Authority of NSW (1982) 149 CLR 337 [11.12]

• Con-Stan Industries of Australia v Norwich Winterthur Insurance Ltd (1986) 160 CLR 226 [11.13]

• BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

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L’Estrange v F Graucob Ltd [1934]

• General rule that a party is bound to a contract they sign: L’Estrange.

• Defendant provided a cigarette vending machine with the terms supplied on a brown paper form. It contained terms that excluded any express or implied warranty. Both parties signed.

• Machine didn’t work. Plaintiff succeeded at trial on the grounds of a breach of implied warranty.

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L’Estrange (cont.)

• Maugham LJ, on appeal, held that the brown paper form “may well constitute a contract in writing… the written document admittedly related to the purchase of the machine by the plaintiff…even if she did not know its contents.”

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Oscar Chess Ltd v Williams [1957]

• Express terms require an objective test: Oscar Chess Ltd

• Defendant sold a car that was a 1948 model to Oscar but actually ten months later, they found out that is was a 1939 model.

• Even despite the logbook identified it as a 1948 model Morris. At trial it was found that this was an express term of the contract that the car was a 1948 model.

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Oscar Chess (cont)

• On appeal, Denning LJ held “If the seller says, ‘I guarantee that it is a 1948 Morris…there is a clearly a warranty…the seller is making himself contractually responsible.”

• Objective test applied, “the intelligent bystander would, suggests, say that the seller did not intend to bind himself so as to warrant that it was a 1948 model, there is only the log-book to go by.”

• The warranty was not binding.

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Dick Bentley v Harold Smith

• Distinguish Dick Bentley v Harold Smith, where warranty was binding.

• Car dealer (Mr Smith) sold a car to Bentley and said that there was 20,000 mileage on the car, and this was later found to be untrue. Bentley sued for breach of warranty.

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Dick Bentley (cont.)

• Held: Lord Denning MR: “Warranty intended depends on the conduct of parties, on their words and behaviour, rather than on their thoughts….Mr Smith was in a position to know, or at least find out, the history of the car…his statement turned out to be quite wrong. He ought to have known better. There was no reasonable foundation for it.”

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JJ Savage & Sons P/L v Blakeney

• Blakeney purchased a boat JJ Savage with an estimated speed of 15 miles per hour.

• The contractual document between the parties made no reference to the capacity of the boat to attain any particular speed. It was then found that the boats’ speed was only 12 miles per hour.

• At trial, it was not held to be a term or warranty. On appeal to the Full VSC, held to be a collateral warranty by way of representation.

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JJ Savage (cont.)

• Barwick CJ, Kitto, Menzies, Owen and Walsh JJ, held: “When the letter was written, the negotiations for the construction and delivery of the boat were incomplete”

• There is nothing in the evidence to support the view that the respondent (Blakeney) included any requirements as to the speed of the motor boat.

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JJ Savage (cont.)

• Consider: Timing of statement and reducing contract to writing or Special skill and knowledge of a party: Oscar Chess Ltd v Williams; or Importance of statement: Couchman v Hill [1947] 1 All ER 103.

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Hospital Products v USSC

• Hospital Products contracted to distribute goods for USSC, however began selling in competition. Whether the representation creates a binding contractual obligation depends on the intention of the parties.

• A representation made in the course of negotiations which result in a binding agreement may be a warranty: [1] it may become a term of the agreement itself, or [2] may be a separate collateral contract.

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Toll (FGCT) P/L v Alphapharm P/L

• The credit application form, representative of RT signed without reading the conditions of contract.

• Clause 6 provided that the carrier be responsible to the customer for loss and damage in relation to the goods.

• The Court held that where, as had occurred, a person signed a document, which was intended to affect legal relations and knew that it contained contractual terms, that person was bound by those terms.

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Curtis v Chemical Cleaning [1951]

• Curtis, Plaintiff/respondent had a dress cleaned by Chemical Cleaning Co the defendant/appellant.

• The Plaintiff was asked by the Defendant to sign a receipt to exempt any liability for damage to beads or sequins.

• A stain was later left by the appellant.

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Curtis (cont.)

• Denning LJ: Held that “by failing to draw attention to the width of the exemption clause, the assistant created the false impression that the exemption only related to beads and sequins.”

• The receipt was “only a voucher for the customer to produce when collecting the goods” and “ not to contain conditions exempting the cleaners from their common law liability.”

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Thornton v Shoe Lane Parking Ltd

• Mr Thornton parked his car at a multi-storey automatic car park owned by the defendant.

• Express terms were on a notice before he paid, “All cars parked at owner’s risk”.

• Mr Thornton then had a car accident and sought damages.

• Lord Denning MR: The customer is bound by those terms as long as thy are sufficiently brought to his notice beforehand. Reasonable steps were made to bring notice prior to contract formation.

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Oceanic Sun Shipping v Fay (1988)

• Brennan J: Qld man entered into travel agreement to Greece, subject to cl. 13 “exclusive jurisdiction to the laws of Greece”.

• Following injury on the trip, sued for negligence. • Held: “The contract of carriage was made when

the exchange order was issued and the exclusive jurisdiction clause was not known to Dr Fay and was not incorporated in the contract of carriage”. It was not part of the contract.

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Baltic Shipping v Dillon (1991)

• Baltic (D/A) operated a cruise liner, which sank and caused Dillon (P/R) to have nervous shock and trauma. Dillon sued successfully for damages. Baltic appealed on the grounds that terms in the contract limited liability.

• Kirby P: “the limitation of liability for damage expressed not in dollar sum but in terms of the ‘units of account’… there was more, before the time fixed, that the carrier could have done to bring the unusual provisions to the notice of the passenger.

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Balmain New Ferry Co Ltd v Robertson

• Robertson paid and entered a turnstile for a ferry service operated by Balmain Ferry.

• After trying to walk out he was required to pay to leave.

• O’Conner J: There was no express contract, and the terms must therefore be implied from the circumstances.

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Balmain New Ferry Co (cont.)

• The company undertook to carry him from the wharf.

• The only contract which could be implied from those circumstances were that the plaintiff was permitted to enter the wharf for the purpose of that contract being performed.

• The company was entitled lawfully to impose the condition of a penny payment on all who used the turnstiles.

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Balmain New Ferry Co (cont.)

• The company, therefore, being lawfully entitled to impose that condition, and the plaintiff being free to pass out through the turnstile at any time on complying with it.

• The Plaintiff had only himself to blame for his detention, and there was no imprisonment of which he could legally complain.

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Con-Stan v Norwich Winterthur Insurance

• Terms may be implied in Custom.• Con-stan issued insurance premiums through

a company called Bedford, but Bedford did not pass on the premiums to Norwich.

• Norwich then sued to recover the premiums.• Court held: Appeal by Con-Stan dismissed, no

implied terms by custom.

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Con-Stan v Norwich Winterthur Insurance

• Implied terms by custom must meet the indicia of:– [1] A justification that the implication of a term into a

contract is a question of fact, that it must be something that the industry engages in: Nelson v Dahl (1879) 12 Ch D 581.

– [2] Custom must be well known so as to acquiesce a reasonable person making a contract

– [3] Must not be contrary to an express term– [4] No knowledge of the custom is necessary to the

individual.

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Codelfa Construction v State Rail Authority of NSW

• Facts: SRA contracted with Codelfa to build a rail line through the Eastern Suburbs. Codelfa commenced work operating three shifts a day. Considerable noise, dust and vibration were caused by the work operating three shifts a day. An injunction was granted.

• Codelfa claimed for additional costs for loss of profit from the injunction.

• The claim was also submitted on the grounds that there was an implied warranty that should provide for the breach.

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Codelfa Construction v State Rail Authority of NSW

• The court had to determine whether an injunction should be implied in a contract, and whether the injunction frustrated.

• Mason J: The terms were determined by the SRA in advance and there is some force in the argument that the SRA looked to Codelfa to shoulder the responsibility for all risks not expressly provided for in the contract.

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Implied Terms by fact

• Mason J set out test in BP Refineries v Hastings (1977) 180 CLR 266:– Implication of the term must be reasonable and

equitable between the parties.– The term must be necessary to give business

efficacy to the contract. If a contract is commercially effective without the term, the court will not imply it. A term will be implied if the contract is unworkable: (Byrne v Australian Airlines Ltd (1995) 185 CLR 411

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BP Refineries (cont.)

– The term must be so obvious that implication goes without saying.

– The term must be capable of clear expression and reasonably certain in its operation. (In Codelfa, the High Court refused to imply a term into the contract because it was impossible to say with any certainty what that term would have said.)

– The implied term must not contradict an express term of the contract nor deal with a matter already sufficiently dealt with by the contract.

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Objective test of intention

• Objective test of intention is to determine what the parties’ intended.

• Consider reasonable party expectations, and Commercial convenience.

• Determine whether the terms are unreasonable or absurd, the courts choose to avoid the ‘capricious, unreasonable inconvenient, or unjust’: Westpac v Tanzone Pty Ltd [2000] NSWCA 25.