LECTURE 3 - The University of Sydney3悉尼大学演讲.doc

26LECTURE 6TERMS OF A CONTRACTEXPRESS TERMSINTRODUCTIONExpress terms are those explicitly included in the contract by the parties. In many cases this will not present any difficulties. However, there are cases where the identity of express terms is not at all clear. The following examples can serve as introductions to a number of principles used in identifying the express terms of a contract.Example 1X and Y undertook lengthy negotiations relating to the sale of Xs Ford motor vehicle to Y for $5,000. During the negotiations, X stated that the car was a 1996 model Ford. After the contract was completed Y discovered that the Ford was a 1994 model, and therefore worth somewhat less as a trade-in than a 1996 model.Is the statement by X as to the year model a term of the contract, with the consequence that X is in breach of contract? In other words, did X promise to sell a 1996 Ford or simply a Ford? If it is the former, X is liable to Y for damages for breach of contract, whereas in the latter case there is no liability for damages because there is no breach of contract.Example 2P agreed to lease his farm to Q and a detailed written lease agreement was prepared by P for the parties to sign. The written lease agreement covered all the terms one would generally expect to find in a contract of this type. Q was in agreement with all of its terms. However, before Q signed the lease, he sought an assurance from P that the drainage system on the farm was in good working order. The written agreement prepared by P was silent on this matter. P promised Q that the drainage system was in excellent condition. Q signed the lease. Q later discovered that the drainage system was not in good working order.Can Q sue P for breach of contract in relation to the fact that the drainage system is not working as promised by P? In other words, does the promise made by P about the drainage system amount to an express term in a contract between P and Q?TERMS AND REPRESENTATIONSExample 1 above raises the question of whether Xs statement was a term of the contract or merely a representation. This is crucial because, if Xs statement is false and it is held to be a term, X is in breach of contract and liable to Y for damages. If the statement is a mere representation, it lacks any contractual force and X cannot be liable for damages for breach of contract. However, a false representation may constitute a misrepresentation, with the consequence that X may be able to rescind the contract. Alternatively, the false representation may attract various remedies for breaching the statutory prohibition of misleading and deceptive conduct.In ascertaining whether statements such as the one made by X are terms or mere representations, see Ellul & Ellul v Oakes (1972) 3 SASR 377; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61; Oscar Chess Ltd v Williams 1957 1 All ER 325; Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd 1965 2 All ER 65; JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442COLLATERAL CONTRACTSExample 2 above raises the issue of collateral contracts. Ps 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. Indeed, in De Lassalle v Guildford 1901 2 KB 215, on very similar facts to Example 2, a collateral contract was found to exist. In relation to collateral contracts see Heilbut Symons & Co v Buckleton 1913 AC 30 at 47; Shepperd v The Council for the Municipality of Ryde (1952) 85 CLR 1 at 12.The elements of a collateral contract are: (i) that the statement is promissory in nature; and (ii) that there is no inconsistency between the main contract and the alleged collateral contract.Promissory Nature of the StatementFor a person to establish a collateral contract he or she must establish that he or she entered into the main contract in consideration of the statement made by the representee. See Heilbut Symons v Buckleton, at 51; JJ Savage & Sons v Blakney.InconsistencyThe alleged collateral contract cannot contradict a term of the main contract. See Hoyts Pty Ltd v Spencer (1919) 27 CLR 133. What is the effect of an entire agreement clause? See DKB Investments Pty Ltd v Belcote Pty Ltd (1991) 105 FLR 429 at 431; Inntrepreneur Pub Company (GL) v East Crown Ltd 2000 2 Lloyds Rep 611 at 613. Can the principles of equitable estoppel set out in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 or s 52 of the Trade Practices Act 1974 (Cth) provide an alternative remedy? PAROL EVIDENCE RULEExample 2 above also raises the application of the parol evidence rule. The parol evidence rule contains two parts, namely, (i) the exclusion of extrinsic evidence that would add to, subtract from or vary the terms of a written contract; and (ii) the exclusion of extrinsic evidence that would otherwise have assisted the court in interpreting or construing the contract. Our concern here is with the first part of the rule. The operation of the second part of the rule will be analysed below.What is covered by the expression extrinsic evidence? See Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347. To what contracts does the parol evidence rule apply? See Codelfa Construction, at 347; Hospital Products, at 61, 89-90, 120. What is the justification for the rule? See Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919) 26 CLR 337 at 451-2.On the parol evidence rule see also LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at 88; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191-2; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 357-8, 363, 364, 368; Hart v McDonald (1910) 10 CLR 417Exceptions to the Parol Evidence RuleThe parol evidence rule is not absolute. Some of the more significant exceptions to the rule include permit the use of extrinsic evidence to in relation to contingent contracts : (Pym v Campbell (1856) 119 ER 903); implied terms; recification of contracts; and collateral contracts (De Lassalle v Guildford and L G Thorne v Thomas Borthwick & Son).INCORPORATION OF TERMS BY SIGNATUREHere we are concerned with the effect of a person signing a document containing terms of a contract. Signature will ordinarily bind a party to the terms even if the signatory has not read or understood the terms set out in the document (the signature rule): LEstrange v F Graucob Ltd 1934 2 KB 394. On the signature rule see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 211 ALR 101 at 108-09, DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd 1971 VR 749; Warmings Used Cars Ltd v Tucker 1956 SASR 249.Exceptions to the Signature RuleIn LEstrange it was held that the signature rule did not apply to situations where documents are signed as the result of fraud or misrepresentation. This exception also extends to signatures obtained as the result of duress, unconscionable conduct and undue influence. As is noted in Toll the principle of non est factum a species of mistake also operates as an exception. The non est factum principle will be analysed later in this book in the lecture on mistake.One of the more significant exceptions to the signature rule is where the signature has been induced by misrepresentation. See Curtis v Chemical Cleaning & Dyeing Co Ltd 1951 1 KB 805 INCORPORATION OF TERMS BY NOTICEAlthough notice is not a factor in relation to cases where the signature rule applies, it is a crucial factor in cases of unsigned documents or writing on signs which are alleged to be part of a contract. In such cases the clauses contained set out in the unsigned document or on the sign will not be terms of the contract unless notice of them has been given to the party alleged to be bound by them. There are two major aspects of the notice rule. They are: (i) the timing of the notice, and (ii) the reasonableness of the notice.Timing of NoticeWhen must notice be given? See Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 25; Olley v Malborough Court Ltd 1949 1 KB 532; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197; Thornton v Shoe Lane Parking Ltd 1971 2 QB 163 at 169.Reasonableness of the NoticeIf a party actually knows that the document or sign contains contractual terms then he or she is bound, irrespective of whether the document or sign has been read: Parker v South Eastern Railway Co (1877) 2 CPD 416 at 423. In the absence of actual knowledge, the delivery of the document or the placing of the sign must be done in such a way that the other party can be taken to have been given reasonable notice of the terms. In this context is the nature of the document relevant? See Parker, at 422; Causer v Browne 1952 VLR 1; Oceanic Sun Line Shipping v Fay, at 229; Thornton v Shoe Land Parking; Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 1989 QB 433.INCORPORATION OF TERMS BY PRIOR DEALINGSWhat is envisaged here is that parties have regularly contracted in the past on the same terms. However, on a particular occasion a contract is entered into without expressly incorporating the terms used in the past. In some cases the terms of the past contracts are incorporated into the later contract. What is the key concept that is relevant here? See Henry Kendall & Sons v William Lillico & Sons Ltd 1969 2 AC 31 at 113. For illustrations see Hollier v Rambler Motors (AMC) Ltd 1972 2 QB 71; Henry Kendall v William Lillico; DJ Hill v Walter H Wright.IMPLIED TERMSINTRODUCTIONImplied terms can be categorised as follows:(i)terms implied to give efficacy to a particular contract based upon the facts and circumstances of a particular case;(ii)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;(iii)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: Lister v Romford Ice and Cold Storage Co Ltd 1957 AC 555 at 576. Who has the onus of proof in establishing implied terms? See Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695-6; Codelfa at 346. Note also Roxborough v Rothmans of Pall Mall Australia Pty Ltd (2001) 208 CLR 516 at 575-6.IMPLICATION OF TERMS ON THE FACTS OF A CONTRACTIn this category of implied terms a court is asked to imply a particular term on the basis of the specific facts and circumstances of the case before it. The rules to be applied depend upon whether the contract is formal or informal.Formal ContractsIn BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3, the Privy Council listed the five requirements necessary to be satisfied as follows:Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied the following conditions (which may overlap) must be satisfied: (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.This statement has been approved by the High Court many times. Each of the BP Refinery elements will be examined in turn.Equitable and reasonableSee Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 442; Codelfa, at 346.Necessary to give business efficacy to the contract Note State of New South Wales v Banabelle Electrical Pty Limited (2002) 54 NSWLR 503 at 521-2 and see The Moorcock (1889) 14 PD 64.So obvious it goes without saying See Codelfa, at 355-6, 374; Heimann, at 695.Capable of clear expression The requirement that a term be capable of clear expression is one which has two elements. First, the term upon which the parties would have agreed had the matter at issue been drawn to their attention must be clear. Second, the term to be implied must be one capable of being formulated with a sufficient degree of precision. Consistency with express terms The requirement of consistency with the express terms of the contract requires that the term said to be implied does not contradict the effect of the express terms of the agreement and does not deal with a matter which the contract deals with adequately. Informal ContractsThe elements in BP Refinery will be applied in cases of formal and detailed written contracts. The question that arises is the relevance of the BP Refinery elements in cases of less formal and/or verbal contracts. See Byrne v Australian Airlines, at 442. IMPLICATION OF TERMS BY LAWThe implication of terms by law can be from pursuant to statute or the common law. The implication of such terms reflects policy considerations rather than the intentions of the parties.Terms Implied by StatuteImportant statues that imply terms include legislation such as Sale of Goods Act 1923 (NSW) and the Trade Practices Act 1974 (Cth).Terms Implied by Common LawIn deciding whether a term is implied by the common law a two part test is used. First, the court must determine the type or class of contractual relationship to which the term would apply. Second, the court must determine that the term is appropriate for all contracts in that type or class of contract. To satisfy the second requirement the test of necessity is used. The court needs to be satisfied that implication of the term is necessary in the sense that if the term is not implied the enjoyment of the rights conferred by the contract would be or could be rendered nugatory, worthless, or, perhaps, be seriously undermined: Byrne v Australian Airlines, at 450. See Liverpool City Council v Irwin 1977 AC 239.An important example of terms implied by the common law is with employment contracts. What are terms implied into employment contracts? Do they include a term to the effect that that an employer will not, without reasonable and proper cause, conduct himself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee? See Eastwood v Magnox Electric plc 2005 1 AC 503 at 522.Can terms be implied into all contracts or is the principle confined to implication of terms in certain types of contracts? See Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at 142; Spira v Commonwealth Bank of Australia (2003) 57 NSWLR 544 at 551-2.Implied Term of Good FaithA more controversial issue in implied terms is whether there is an implied term in commercial contracts that parties will act reasonably and in good faith. A majority of the Court of Appeal in New South Wales held such a term arose in the context of a construction contract in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1982) 26 NSWLR 234. A later New South Wales case of Burger King Corporation v Hungry Jacks Pty Ltd 2001 NSWCA 187 saw the implication of such a term in the context of a development agreement between a franchisor and franchisee. The implication of such a term was supported in Victoria in the context of a franchise agreement in Far Horizons Pty Ltd v McDonalds Australia Ltd 2000 VSC 310 and by the Western Australian Supreme Court in the context of a process contract in Dockpride Pty Ltd v Subiaco Redevelopment Authority 2005 WASC 211. Doubts as to the existence of such an implied term are voiced in the Federal Court decision of Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 95-8; 117 ALR 393 at 404-07, the Western Australian Full Court decision in Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 at 52, and in Esso Australian Resources Pty Ltd v Southern Pacific Petroleum NL 2005 VSCA 228 at 25, where Buchanan JA, speaking for the Victorian Court of Appeal, said:I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident, so that an obligation of good faith applies indiscriminately to all the rights and power conferred by a commercial contract. It may, however, be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery (Westernport) Pty. Ltd. v. Shire of Hastings, rather than implication as a matter of law creating a legal incident of contracts of a certain type.In Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289 at 301, 327, six High Court judges left open the question of whether there was such an implied term. Kirby J, at 312, also left the question open but did opine that such an implied term appears to conflict with fundamental notions of caveat emptor that are inherent (statute and equitable intervention apart) in common law conce