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Contents Of Contracts Interpretation Consumer Rights Implied Terms Notes

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TABLE OF CONTENTS
Introduction: Chen-Wishart............................................................................................................... 5
A - What are Terms?................................................................................................................... 6 1/ Express terms................................................................................................................... 6 a/ The parole evidence rule................................................................................................ 6 b/ Collateral terms and collateral contracts......................................................................7 c/ Incorporation of terms................................................................................................... 7 2/ Implied Terms................................................................................................................... 7 a/ Terms implied in Fact.................................................................................................... 8 b/ Terms implied in law...................................................................................................... 8
B - What do the terms mean? (Interpretation)............................................................................9
C - Interpretation of exclusion clauses.....................................................................................10 1/ Fundamental Breach....................................................................................................... 10 2/ Contra proferentem........................................................................................................ 11
|NOTE Peel, "Whither Contra Proferentem?" in Contract Terms (eds Burrows and
Peel, 2007) 53............................................................................................................... 11 3/ Limitation-exclusion distinction......................................................................................11 4/ Exemptions of negligence liability..................................................................................11 5/ Exemptions for indirect and consequential loss..............................................................12
I - Interpretation.............................................................................................................................. 12
|*Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1
WLR 896, 912-913 (Lord Hoffmann).............................................................................12
|*Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38........................................13
|*Arnold v Britton [2015] UKSC 36, [2015] 2 WLR 1593 esp [14]-[23].........................14
(r) *Wood v Capita Insurance Services Ltd [2017] UKSC 24.........................................14
|Lord Nicholls, "My Kingdom for a Horse: The Meaning of Words" (2005) 121 LQR 577
...................................................................................................................................... 14
|Leggatt, "Making sense of contracts: the rational choice theory" (2015) LQR 454....15
|McLaughlin, "A better way of making sense of contracts?" (2016) LQR 577..............16
|Lord Sumption, "A Question of Taste: The Supreme Court and the Interpretation of
Contracts"..................................................................................................................... 16
II - Implied Terms............................................................................................................................ 17
|Collins, "Implied Terms: The Foundation in Good Faith and Fair Dealing" (2014) 67
Current Legal Problems 297......................................................................................... 17
A/ Terms implied by Statute in Sale of Goods Contracts..............................................................17 1/ Non-Consumer Contracts...................................................................................................... 17
|*Sale of Goods Act 1979, ss 12-15A;............................................................................17 2/ Consumer Contracts.............................................................................................................. 18
|*Consumer Rights Act 2015 ss 1 - 3, 5, 9 - 16, 18 (goods contracts); ss 49, *50, 51 -
57 (services contracts) s. 59......................................................................................... 18
B/Terms Implied by Custom......................................................................................................... 18
|Hutton v Warren (1836)............................................................................................... 18
C/ Terms implied by the court...................................................................................................... 18 1/ Terms implied in Fact........................................................................................................... 18
|*The Moorcock (1889) 14 PD 64..................................................................................18
|*Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 [16]-[27].............19
|*Marks and Spencer v BNP Parisbas [2015] UKSC 72, [2015] 3 WLR 1843...............20 2/ Terms implied in Law............................................................................................................ 20
|*Liverpool CC v Irwin [1977] AC 239..........................................................................20
|Scally v Southern Health & Social Services Bd [1991] 4 All ER 563...........................21
|Peden, Policy Concerns Behind Implication of Terms in Law (2001) 117 LQR 459. . . .21 3/ Implied Duty of Good Faith?.................................................................................................22 a/ Foundation Case: Yam Seng v International Trade Corp.............................................22
|Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) NB [123][153] on implied term of good faith, [186]-[192] on reliance damages........................22
Page 1
CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS |NOTE Whittaker (2013)...............................................................................................24 b/ What is the scope of Yam Seng?..................................................................................24
|Collins, 2014................................................................................................................ 24
|Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a
Medirest) [2013] EWCA Civ 200 [77]-[92]....................................................................25
|Hamsard v Boots (2013, Norris J)................................................................................25
|Cohen, "Pre-Contractual Duties: Two Freedoms and the Contract to Negotiate" in
Good Faith and Fault in Contract Law, ed. Beatson & Friedman, p.25........................25
III - Exemption Clauses.................................................................................................................... 29
|Atiyah, Introduction to Contract Law pp. 149-154 (2006)...........................................29
A - Incorporation.......................................................................................................................... 30
|Cartwright, Unequal Bargaining, pp. 37-51................................................................30 1/ Signature............................................................................................................................... 30
|*L' Estrange v Graucob [1934] 2 KB 394.....................................................................30
|*Curtis v Chemical Cleaning Co [1951] 1 KB 805........................................................31
|Spencer, "Signature, Consent, and the Rule in L'Estrange v Graucob" (1973)...........32
|Tilden v Clendinning (1978, CoA of Ontario)...............................................................32
|Atiyah (1986)............................................................................................................... 32 2/ Notice.................................................................................................................................... 32 a/ Notice must be given at or before time of contracting...................................................32
|*Olley v Marlborough Court Ltd [1949] 1 KB 532.......................................................32
|*Thornton v Shoe Lane Parking [1971] 2 QB 163........................................................32 b/ The terms must be contained or referred to in a document intended to have contractual effect................................................................................................................................... 33
|*Chapelton v Barry UDC [1940] 1 KB 532...................................................................33 c/ Reasonable steps to bring the terms to the attnetion of the other party........................33
|Parker v South East Railway Co (1877) 2 CPD 416.....................................................33
|*Interfoto Picture Library v Stiletto Visual Programmes [1988] 1 All ER 348.............33 3/ Course of dealing.................................................................................................................. 35
|*McCutcheon v MacBrayne [1964] 1 All ER 430.........................................................35
|Hollier v Rambler Motors [1972] 2 QB 71...................................................................36
|British Crane Hire v Ipswich Plant Hire [1975] QB 303..............................................36
B - Construction........................................................................................................................... 36
|Hollier v Rambler Motors............................................................................................36
|*Photo Productions v Securicor [1980] 1 All ER 556...................................................37
|*Ailsa Craig Fishing v Malvern Fishing [1983] 1 WLR 964.........................................37
|*George Mitchell v Finney Lock Seeds [1983] 2 All ER 737........................................37
(r) Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372......38
IV - Legislative control of exemption clauses and unfair terms.......................................................38
A - Non-consumer contracts......................................................................................................... 39 1/ UCTA..................................................................................................................................... 39
|*Unfair Contract Terms Act 1977 ss 1 - 3, 6 - 7, 11 and 13; Schs 1&2 (as amended by the Consumer Rights Act 2015)....................................................................................39 2/ Illustrative Cases................................................................................................................... 43
|Phillips Products v Hyland [1987] 2 All ER 620...........................................................43
|NOTE Adams and Brownsword, "The Unfair Contract Terms Act: A Decade of
Discretion" (1988) 104 LQR 94.....................................................................................44
|Thompson v Lohan (Plant Hire) Ltd [1987] 2 All ER 631.............................................46 3/ The nature of exclusion clauses............................................................................................ 47
|*Smith v Eric Bush [1989] 2 All ER 514......................................................................47
|Stewart Gill v Horatio Myer [1992] 2 QB 600.............................................................47
|*St Albans DC v International Computers [1996] 4 All ER 481...................................48
|Watford Electronics Ltd v Sanderson CFL Ltd [2001] All ER (Comm) 696.................48
|Beale, "Exclusion and Limitation Clauses in Business Contracts: Transparancy" in
Contract Terms (eds Burrows and Peel, 2007) 191......................................................49
B - Consumer contracts................................................................................................................ 50
Page 2
CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS (r) *Directive on Unfair Terms in Consumer Contracts (93/13/EEC of 5 April 1993, OJ
L95/29).......................................................................................................................... 50
|*Consumer Rights Act 2015 ss 31, 57, 61 - 71, 73, 75 - 76; Sched.2..........................50
|Bright, "Unfairness and the Consumer Contract Regulations" in Contract Terms (eds
Burrows and Peel, 2007) 173........................................................................................ 56
|Bright, "Winning the Battle Against Unfair Terms" (2000) 20 LS 331........................57
|*The Office of Fair Trading v Abbey National Plc and 7 Others [2009] UKSC 6, [2009]
3 WLR 1215.................................................................................................................. 58
|NOTE Chen-Wishart (2010) 126 LQR 157...................................................................58
(r) *Aziz v Caixa d'Estalvis de Catalunya, Tarragona i Manresa of 14 March 2013 (C415/11).......................................................................................................................... 59
(r) *Kasler v OTP Jelzalogbank Zrt of 30 April 2014 (C-26/13)......................................59
(r) *ParkingEye Ltd v Beavis [2015] UKSC 67, [2015] 3 WLR 1373..............................59
V - Commentary............................................................................................................................... 59
Micklitz and Reich, "The Court and Sleeping Beauty: the Revival of the Unfair
Contract Terms Directive (UCTD)" (2014) 51 CMLR 771.............................................59
Anson's Law of Contract (27th ed.) pp.182-199 (see table at p. 184)...........................59

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CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS INTRODUCTION: CHEN-WISHART

Policy factors:Promoting freedom of contract
Curbing excesses of unfairness and exploitation resulting from significant inequality in bargaining power

The vitiating factors can go some way, but they are usually ineffective against standard term contracts, so that the modern increase in such contracts puts pressure on traditional contract law,
premised on the model of individual negotiation.
The danger here is:The customer has no time to read them, and if he did he would probably not understand them,
and even if he understood them and objected, he would be told to take it or leave it. If he then went to another supplier the result would be the same. Freedom of contract must surely imply some choice or room for bargaining (Suisse Atlantique v NV Rotterdamsche Kolen Centrale
(1967) per Lord Reid)

Courts limit the effect of unfair terms by:Implied term in favour of adhering party
Holding that insufficient notice has been given of onerous or unusual standard terms in unsigned documents
Interpreting an unfair term in a way less advantageous to the adhering party
Holding the unfair term unenforceable

A - WHAT ARE TERMS?
Must distinguish (i) terms from (ii) representations and (iii) "mere puffs".

1/ EXPRESS TERMS
A/ THE PAROLE EVIDENCE RULE

Parties are generally barred from adducing extrinsic evidence to add to/vary/contradict a document that purports to record the parties' agreement (Jacobs v Batavia).
Exceptions:Claim that contract is vitiated
Claim that the contract includes additional terms than those in the document (express or implied)
Claim to rectification

Thus it is better to understand the rule as an easily rebuttable presumption that the document contains the entire contract. It is problematic because:-

The reasoning to support it is circular: the document is presumed to contain the whole contract, unless the parties did not so intend (such intention requiring extrinsic evidence to show) (Allen v Pink)
Its application is questionable - in Shogun Finance v Hudson HL held that the parole evidence rule bars extrinsic evidence in claim of mistaken identity (though in this case is the rule relevant where it is not what is the contract but whether there is a contract at all that is in question?)

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CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS B/ COLLATERAL TERMS AND COLLATERAL CONTRACTS-

For D's assurance to amount to a collateral term C must show that it was the decisive influence on the transaction, the very thing that induces the contract (Mendelssohn v Normand,
Phillimore LJ) ([?] it was merely a cause, which is the test for misrepresentation)
It used to be thought that collateral terms could only add to but not vary the written contract,
so courts sidestepped the problem by finding a collateral contract (a second unilateral contract containing the promise, in consideration of the promisee entering the main contract)

They both perform the same function:
1) Confer remedial advantages for breach of the collateral term/contract (better than misrepresentation because C might want their expectation interest)
2) Override privity (ex. Shanklin v Detel)
3) Override inconsistent terms in the main contract by circumventing the parole evidence rule
Entire agreement clauses (clauses that say the written document contains the entire contract and no other collateral terms may be added) are enforceable (Inntrepreneur v East Crown).
C/ INCORPORATION OF TERMS

i/ Signature:-

Signature is binding except:
o Non est factum

Misrepresentation

Other vitiating factor (mistake, undue influence, unconscionability, duress, incapacity

Non-contractual nature of the signed document (ex. Time sheets in Grogan v Robin)
Criticism:
o McCutcheon v David MacBrayne, Lord Devlin: the rule is premised on a "world of make-belief" in that standard form contracts are not made to be read and the signature is about as significant as a handshake

Spencer and Waddams in response to L'estrange

Tilden v Clendenning

European Draft Common Frame of Reference: terms not individually negotiated are not sufficiently brought to the other party's attention by mere reference to them in a document, even if that party signs the document.

ii/ Unsigned documents:At or before contract formation (Olley, Thornton)
Contract document not something that a party is expected to know to contain contract terms
(Chapelton v Barry)
Reasonable notice:
o that the document contains terms (even if C actually remained ignorant of the terms)
(Parker v SE Railway)
o of onerous or unusual terms (ex. Interfoto v Stiletto), based on the presumed intention of the party being bound that there are no unreasonable conditions to the party tendering the document and not insisting on it being read (Bramwell LJ, Parker)

iii/ Course of dealing

2/ IMPLIED TERMS
Since the "implication of terms is so potentially intrusive", contract law imposes "strict constraints on the exercise of this extraordinary power" (Lord Bingham, Phillips v B Sky).
A/ TERMS IMPLIED IN FACT

Page 5
CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS -Traditional tests:
o Business efficacy (The Moorcock)
o Officious bystander (Shirlaw)
The test in AG of Belize v Belize Telecom:
o Implying terms in fact is an exercise in the construction of the instrument as a whole
(which has been approved and welcomed for promoting the "internal coherence of the law" - Arden LJ in Stena Line v Merchant Navy)
o The different tests are not really tests but are a collection of different ways in which judges have tried to express the central idea that the implied term must spell out what the contract actually means

The rule that an implied term cannot contradict an express term is subject to contextual interpretation of the express term itself to avoid defeating the overriding purpose of the term

B/ TERMS IMPLIED IN LAW-

Test is necessity but less stringent than terms implied in fact, though Lord Denning's reasonable test is rejected by the HL (Liverpool CC v Irwin), although:
o Whether or not it made any difference is debatable (CF Atiyah - that the difference is
"unreal")
o Lord Denning thinks that such terms are not founded on the intentions of the parties but whether the law has already defined the obligation or its extent (Shell UK v Lostock
Garages)
o Dyson LJ thinks that rather than focus on the elusive concept of necessity, it is better to recognize that the existence and scope of standardized implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations .
o Peden (approved by CoA) thinks that courts should consider (i) whether the implied term is consistent with existing law, (ii) how it would affect the parties, and (iii) wider issues of fairness in society. He thinks that the underlying idea is to maximize the social utility of the relationship, i.e. ensure cooperation between the parties and compliance with society's standards.
o Collins thinks, however, that such open-ended considerations are neither appropriate nor necessary but we should have a two-stage inquiry:
-What rule achieves an efficient allocation of risks between the parties?
-Is this consistent with the reasonable expectations of the parties?
Though the court's power to imply terms in law are restricted to terms that fit the generality of contracts of that class, sometimes courts have implied a term in a very narrow class of contracts, thus narrowing the gap between terms implied in law and in fact.
o Scally v Southern Health and Social Services Board - term implied where a particular term (a) resulting from collective bargaining (b) confers a valuable right contingent on the employee taking an action, and (c) the employee cannot reasonably be expected to know of the term without being notified

Freedland: there are "few if any other situations" where this would happen in employment contexts

B - WHAT DO THE TERMS MEAN? (INTERPRETATION)-

Traditionally, literal interpretation (consistently with the parole evidence rule) - a contract's meaning was discoverable within the four corners of the document without reference to extrinsic evidence.
However, words don't always have a single, immutable, clear meaning, so a change in approach was consolidated in Investors Compensation Scheme v West Bromich (Lord
Hoffmann):

Page 6
CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS The overall aim of interpretation is ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parites in the situation they were in at time of contract.
o The scope of contextual information admissible is everything which would have affected the way in which the language of the document would have been understood by a reasonable man, subject to reasonable availability to parties and exceptions.
Thus it is the weight and not admissibility that will be emphasized.
oWhen will the court depart from the literal meaning of words used?--

"The background may not merely enable the reasonable man to choose between the possible meanings of words that are ambiguous, but even to conclude that the parties must have used the wrong words or syntax" (Lord Hoffmann).
In such cases, language that flouts business common sense must be made to yield to business common sense. If it is clear that (i) something has gone wrong with the language AND (ii) what the parties meant, then there is no limit to the amount of verbal rearrangement or correction the court is allowed (Lord Hoffmann, Chartbrook)
But courts don't easily accept that people made linguistic mistakes:
o Not enough to show that the contract is unduly favorable to one party (Chartbrook).
o Where parties used unambiguous language, the courts must apply it (Rainy Sky).
o Chartbrook should only be seen as an opportunity to remedy by construction a clear error of language which could not have been intended (Rainy Sky)
The expansive scope of interpretation means that it might overlap with rectification and implied terms:
o Buxton = the process of rectification is virtually identical to Lord Hoffmann's principles of interpretation in ICS.

Inadmissibility of previous negotiations and subsequent conduct:-

Evidence of previous negotiations is inadmissible to contract interpretation, but the exclusion does not apply to evidence of negotiations as evidence to (i) establish a fact that may be relevant as background known to the parties, (ii) claim for rectification, or (iii) estoppel (Lord
Hoffmann, Chartbrook).
Evidence of conduct subsequent to contract formation is also inadmissible because the meaning of contracts cannot change over time (Schuler v Wickman).

C - INTERPRETATION OF EXCLUSION CLAUSESBefore, they were often given very strained meanings in order to get around them, but UCTA
has reduced the need to do this so that "any need for this kind of judicial distortion of the
English language has been banished". It is wrong to place a strained construction upon words in exclusion clauses that are clear and fairly susceptible to one meaning only (Lord Diplock,
Photo Production).

However, this may be somewhat of an overstatement because there are still rules on interpreting clauses that exclude/limit liability:

1/ FUNDAMENTAL BREACH
You can't exclude liability for a breach that goes to the very root of the contract. Though Lord
Denning advocated it as a rule of law that applies irrespective of the parties' intention, it is now regarded as a rule of construction (the more unreasonable, the less likely the parties intended it):Photo Production said that the doctrine of fundamental breach had served a useful purpose,
but this is no longer necessary because of UCTA.

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CONTRACT: INTERPRETATION/IMPLIED TERMS/UNFAIR TERMS

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