Tuesday, June 8, 2010

Contracts - Express Terms

Types of Terms – Express/Implied

  • Express
  • These are terms that the parties have actually agreed upon and in some cases negotiated.
  • They can be,
    • Oral or written
    • Actually agreed upon
    • Reasonable notice prior to contracting
    • Other terms even in absence of subjective intention
  • Express terms often include terms that the parties may not be aware of (cinema ticket etc.)
    • You don’t have to be aware of terms to be bound by them
  • Express terms are often described as terms that the parties have actually agreed upon, but in truth they are terms that the court can objectively ascertain.
  • Implied
  • Terms that are read into or implied into the contract irrespective of the parties intentions in order to make the contract work.
  • Often used to flesh out gaps or omissions in the contract.
  • The express and implied terms of the contract govern the relationship between the parties.

Role of Terms

  • Identify parties’ rights and obligations
  • Contrast formal and informal contracts
    • Formal: often very detailed
    • Informal: barest of terms
  • Terms can also:
    • Qualify or postpone obligations [contingent conditions]
    • Dictate or limit remedies [liquidated damages clauses, exclusion clauses, dispute resolution clauses etc]
  • Often most contracts only contain the barest terms – parties, subject matter and price.
    • In this case, if a dispute arises the parties can resort to common law remedies.
  • A party wishing to bring an action for a breach of contract needs to establish
    • That a particular term was part of the contract and
    • The other party has failed to perform that term.

Approach to Identification of Express Terms

  • Objective not subjective
    • What did the parties say and do and what reasonable inferences can be drawn from that.
    • Given the circumstances, what can be reasonably inferred to be the intentions of the parties?
    • This gives the courts an immense amount of leeway to manipulate the law to achieve a desired (reasonable) outcome.
  • Look at parties’ presumed intentions, not actual
  • subjective intentions
    • Eg - Equuscorp Pty Ltd v Glengallan Pty Ltd[2004] HCA 55 at [33]
  • Actual opinions of parties normally irrelevant.
  • Focus on what was said and done.

Two Aspects to Identification

  • Incorporation aspect
  • Promissory aspect

Incorporation Aspect

  • What material can be regarded as part of contract?
  • Problem areas include:
    • Signed written contracts preceded by oral undertaking
      • can a court have regard to oral exchanges during negotiations that don’t end up in the written agreement?
    • Unsigned material part of ticket or brochure
  • Recognises that not every statement made or document handed over is necessarily a term
    • It depend on the nature of the contract that one is dealing with

Promissory Aspect

  • Statements asserted to be terms must be promissory
    • So even if material is admissible, the court must still find that it makes a promise.
  • There are promissory and non-promissory statements and only promissory statements can be terms
  • Representation = statements, to either past or present, of fact relating to the subject matter of the contract.
    • Unless these statements are found to be in all the circumstances, promissory, it will not be a terms.
  • Now the classification of statements as promissory/non-promissory affects the remedy when these statements are found to be untrue.
  • If the statement is found to be a term of the contract, then you have an action for breach and can apply the contractual remedy of damages for loss of expectation.
  • Other statements which fall short of being promissory may give a much more limited remedy or no remedy at all.

Classification affects Causes of Action

  • Promissory statements
    • action for breach
  • Mere representation
    • action in misrepresentation or
    • deceptive or misleading conduct
  • Opinions or puffs
    • no action for misrepresentation
  • but may be action for deceptive or misleading conduct

Incorporation of Terms

  • Depends on classification of contract as:
    • oral
      • = terms derived entirely from discussions
    • in writing
      • = signed or intended to be solely in writing
    • partly oral, partly written
      • = oral statements, and written material signed or unsigned

Oral Contracts

  • No restrictions on admissible material [eg, negotiations]
  • So incorporation is never an issue with oral contracts, so the court must simply sought through it and find whether statements made are (non-) promissory.
  • Finucane v NSW Egg Corp (1988) 80 ALR 486, 520 per Lockhart J.
  • Sole issue whether material promissory or representational [see tests below]


  • Dave sees a “For Sale” sign on a Racing Car. Before deciding to buy the car, Dave asks the owner, Bob, whether the car is “mechanically sound”. Bob tells Dave that the car “goes like a dream”, is in “very good mechanical condition” and is a “steal” for $25, 000”. The car turns out to have serious mechanical problems which will cost Dave more than $25,000 to fix. Nothing was recorded in writing.


  • Can Dave bring action for breach of express terms of contract?
  • Do Bob’s statements form part of contract?
  • Incorporation-not problematic [oral contract]
  • Sole issue whether Bob’s statements are promissory
  • If not, are there alternative remedies? E.g.-rescission for misrepresentation

Incorporation and Contracts in Writing

  • Have traditionally been subjected to far more stringent rules.
  • Two aspects:
    • Incorporation by signature
      • has including effect
    • Parol evidence rule
      • has excluding effect

Incorporation by Signature

  • The terms of a written agreement are ordinarily incorporated by the mere fact of signature SO
  • Signature binds even if contract not read
    • L’Estrange v Graucob [1934];
    • The rule as to signature was applied in that case and has been applied throughout the common law world.
    • Oceanic Sun [1988] 62 ALJR 389, 402,
    • Affirmed Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52.
  • Rationale
    • Reasonable reliance by third parties
    • Evidence of intent to be bound arising from cultural practices
  • There is a significant amount of criticism by the courts as there are occasions when parties have genuinely been taken by surprise (Toll v Alphapharm)

Displacement of Rule

  • Rule subject to excuses for non-performance, which take priority over signature rule: eg-
    • Misrepresentation/deceptive or misleading conduct
    • Duress
    • Unconscionable dealings/statutory unconscionability
    • Undue influence
    • Non est factum/operative mistake

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52

Factual Summary

  • Heat sensitive flu vaccine stored with Toll [def/appellant]
  • Toll as bailee under common law duty to take care
  • Alphapharm-Australian distributor -Plaintiff/respondent
    • action in negligence against Toll as bailee
  • Toll’s defence - indemnity form on back of credit application signed by Alphapharm’s agent
  • Indemnity operated like exclusion clause on a second application for credit contract, which said that Toll could be reimbursed by Alphapharm for any liability it got for negligence.
    • entitled Toll to be reimbursed for liability
  • HELD: The mere fact that the signature was unintended was not enough to displace the signature rule.
  • Ratio
  • “The general rule which applies in the present case is that where there is no vitiating element and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms and to affect legal relations, is bound by those terms and it is immaterial that the person has not read the document.” [2004] HCA 52 para 57. (My emphasis).
  • So don’t have to know what the terms are but do have to know that you are signing a contractual document.
    • So if a person does not know that it is a contract, then the signature rule probably won’t apply

Awareness of Contractual Nature of Document

  • Rule may not apply if signatory not aware that document contractual in nature.
  • See eg Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 (discussed in Toll)
    • A man attended a radio promotion at a Go-Kart track and was asked to sign a document at the point of entry which was headed in very large letters ‘to help with our advertising’
    • He was hurried into signing it, and he didn’t have a chance to read it and he thought it was just a form for marketing purposes.
    • He didn’t have reason to believe that it was a contractual document.
    • It turned out to contain a term that limited the marketers liability for negligence and if he read it, he wouldn’t agree to it.
    • CA FOUND that the exclusion clause was not a term of the contract because he was not aware that what he was signing was not a contractual document.
    • So if you are attempting to bind someone with a document then the person signing has to be aware that they were signing a contract (objective test)
      • Reasonable people in the position of the plaintiff must be able to know it was a contract
    • High Court of Australia in Toll alludes to this case and state that this case can be distinguished from Toll because in Le Mans he didn’t know it was a contract.

Parol Evidence Rule (PER)

  • Prevents use of pre-contractual extrinsic material (oral or written) to add to, vary or contradict terms of written contract
    • So it is an exclusionary rule of evidence that says that when you are dealing with a written contract, you can’t lead additional extrinsic evidence to show that the terms were wrong in some way.
  • Also restricts use of extrinsic material for interpreting written terms
  • The broad purpose of the rule is to exclude evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument. Although traditional expositions of the rule did not in terms deny resort to extrinsic evidence for the purpose of interpreting the written instrument, it has often been regarded as prohibiting the use of extrinsic evidence for this purpose. No doubt this is due to the theory in English legal thinking in the first half of this century that words of a contract are to be given their plain and ordinary meaning. Recourse to extrinsic evidence is then superfluous.” Codelfa at 347 per Mason CJ. (1982)

Purposes of Rule

  • Promotes finality of documents
  • Reduce risk of perjury
  • Facilitate efficient litigation
    • Because if the court had to review all of this evidence it could take months.
    • See eg Equuscorp Pty Ltd v Glengallan Pty Ltd [2004] HCA 55, [35]

Scope of Rule

  • There has actually been a lot of criticism of the PER and recently it has come under judicial review.
  • So two versions have developed
    • SRA of NSW v Heath Outdoor (1986) 7 NSWLR 170, 191 per McHugh J [see written lecture notes]
    • McHugh J acknowledges that there are two ways of approaching the rule, one restrictive and one relaxed

Strict Version

  • This rule will apply whenever the contract appears on its face to be the complete record of the parties’ agreement
  • SO whether contract intended to be complete record determined only by its terms
  • This means that you will not be able to admit extrinsic evidence because the court will look only at that written agreement.
  • Unless there’s something in the terms themselves that indicate that maybe the written agreement wasn’t intended to be the only record, then extrinsic evidence will be inadmissible.
    • LG Thorne & Co v Borthwick Pty Ltd per Roper J

Relaxed Version of Rule

  • Only applies to written agreements that the parties themselves intended should be the sole and complete record of their agreement
  • AND before you can determine this, provisionally, you have to admit evidence of the surrounding circumstances and negotiations
  • SO if you try to work out if the partiers intended (objectively ascertained) that the parties intended for their written document to be final, then you have to at least look at what was said.
  • THUS, Only applies if written document can reasonably be regarded as intended to be exclusive record of parties’ agreement
  • SO court can look at the surrounding evidence and use that to determine if the parties wanted it to be the final record.
    • L.G. Thorne v Borthwick at 93-94 per Herron J
    • Applied Nemeth v Bayswater Road Pty Ltd (1988) 2 Qd R 406, 414 per McPherson J

Consequences of Applying Relaxed View

  • If oral extrinsic material is admitted, we have at the very least:
    • Partly oral/partly written contract
    • Van den Esschert v Chappel [discussed shortly]

  • If written extrinsic material admitted, have:
    • Written contract supplemented by additional written material
  • Proviso: Admitted material must be promissory to be a term.

Nemeth v Bayswater

  • Contract for lease of aircraft
  • PER is at best a presumption that the parties intend their written agreement to be the complete record
    • BUT that presumption can be displaced
  • How that presumption is displaced will depend on its circumstances
  • SO Considerations relevant to its displacement
    • Nature, form or content of agreement
  • IN this case the court refused to admit extrinsic evidence re the sale of an aircraft because the court took into account the detail of the contract and also the presence of an ‘entire contracts clause’
  • ALSO, before the final contract was signed, each of the parties had an opportunity to make changes – so this goes to issues of credibility and, whether or not, in all the circumstances the parties intended their agreement to be final.
  • Example of Entire Contracts Clause
  • “The operator acknowledges and agrees that all the terms of the agreement between the owner and the operator relative to the aircraft are contained in this written agreement and that no representation, warranty, covenant or other matter or thing whatsoever not specifically contained herein shall have any force or effect or be of any validity whatsoever.” Clause 9 - Nemeth v Bayswater
  • Effect of Entire Contracts Clause
  • “The effect of any particular clause will of course depend upon its own terms and context but in general it may be said that…an entire contract clause will bind the parties in accordance with its terms properly construed.” See Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190, 196.
  • So clauses of this kind will help a court decide whether the written contract is intended to be the final record of terms.

Limitations on Use of Entire Contracts Clauses [Not covered in lecture-see notes]

  • Entire agreement clauses do not prevent:
    • implication of terms Hart v MacDonald (1910) 10 CLR 417, 427
    • rectification MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 226
    • actions under s 52 TPA 1974 (Cth) for deceptive or misleading conduct
  • But unclear whether they exclude estoppel argument
  • See eg Johnson Matthey Ltd (1990) 23 NSWLR 190, 195-196; Australian Co-Operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 (both contra).
    • BUT cf Whittet v State Bank of New South Wales (1991) 24 NSWLR 146, 150; Branir Pty Ltd Owston Nominees [2001] FCA 1833, [444]-[447] per Allsop J (pro); all discussed in Equuscorp Pty Ltd [2006] QCA

*EquusCorp v Glengallan*

  • The significance of this case is that the High Court of Australia seemed to accept that extrinsic evidence cannot simply be rigidly excluded.
  • BUT they still came out very much in favour of upholding written contracts according to their terms.
  • SO PER probably diminishing in importance but the High Court is still very attached to the objective approach to contract law and that will often present greater difficulties to someone attempting to argue for the inclusion of extrinsic evidence.
  • Glengallan borrowed money to invest in a crayfish farm
  • Loan agreement contained terms of repayment which conflicted with an oral agreement between the parties reached just prior to the execution of the written agreement
  • The borrower was told that the loan would be a ‘limited recourse loan’
    • This is a loan where you might make one or two up-front payments and then the rest of the loan is repaid out of the profits of the proposed venture so if that goes bad then the borrower doesn’t have to repay the balance of the loan
  • The tax department got involved so there was a pulling-back from the agreement
  • SO, the High Court of Australia looked at the oral discussions which conflicted very clearly with the written terms that stated that it was a normal loan which had to be repaid in full
  • ISSUE: THUS, would the court have regard to the evidence of this preceding discussion?
  • The court had no problem having regard to it
  • On a strict application of the PER, that evidence would never have been admitted to start with so this seems to suggest that the High Court of Australia is prepared to adopt a rather relaxed approach to the PER
  • BUT the High Court of Australia still FOUND that the written agreement over-ruled the oral agreement.
  • Still important to recognise that the High Court of Australia found that the PER and the objective approach are both subject to any relief which is afforded by statute or other legal or equitable principles

Parol Evidence Rule subject to Exceptions

  • “Where parties enter a written agreement, the court will generally hold [parties] to…obligations they have assumed…unless relief is afforded by statute, or some legal or equitable principle is applicable…proved according to established categories.” Equus [para 35]

Recognised Exceptions

  • These are the categories which Cheshire and Fifoot argue that expressly or impliedly say are areas that can be used to ignore the terms of a written contract.
    • “Partly oral/partly written contracts;
    • Collateral contracts ;
    • Rectification;
    • Mistake (non est factum), misrepresentation, fraud (that is, unconscionable dealing, duress, undue influence, breach of confidence, other equitable wrongs);
    • Statutory relief (for example, misleading or unconscionable conduct in trade and commerce);
    • Estoppel.” Cheshire & Fifoot, 9th ed, 2008, para10.20, p 419.
  • SO why did none of these apply in Equuscorp?
    • NOT “Partly oral/partly written contracts; because the oral term was completely in conflict with the terms in the head contract, as a result C&F have argued that even if the parties did not intend the written contract to be the complete record, evidence will only be admitted to add to the terms, not vary or contradict.
      • SO the ability to subvert a written contract has become more difficult.
    • Collateral contracts ;
    • Rectification;
    • Mistake (non est factum), misrepresentation, fraud (that is, unconscionable dealing, duress, undue influence, breach of confidence, other equitable wrongs); SO because he had read the contract so it was difficult for him to claim mistake.
    • Statutory relief (for example, misleading or unconscionable conduct in trade and commerce); There were suggestions of deceptive or misleading conduct so it was sent back by the High Court of Australia which subsequently went to the QLD CA which rejected that argument.
    • Estoppel.” Cheshire & Fifoot, 9th ed, 2008, para10.20, p 419.

Application to Facts (From Slide)

  • Partly oral/partly written agreement not possible where oral term inconsistent with written terms
    • “Even if it can be established that the parties did not intend the document to record all the terms of their contract, evidence is admissible only of oral terms that ‘add to’ rather then ‘vary’, the document (as for example in LG Thorne v Borthwicke). See Cheshire and Fifoot, 9th ed, p 401.

Collateral Contracts

  • These are a recognised exception to the PER. (Equuscorp)
  • A situation where a party may argue and get around the PER
  • Even if a court decides that a contract is to be solely in writing, it may be possible to argue that an oral or written statement made during negotiations gives rise to a separate independent collateral contract.
  • These are a device that occur when one party makes a promise during negotiations and that promise induces the promisee to enter into the head contract.
  • This same promise may itself have been the subject of a partly oral/written, so partiers will often first argue this and in the alternative that it gave rise to a separate collateral contract
  • SO But For the collateral promise, the promisee would never have entered into the head contract.
    • The consideration for a collateral contract is the other party’s entry into the main contract.
  • Collateral promise or warranty by A in exchange for B’s entry into separate written contract [head contract]
  • Collateral warranty forms separate contract to head contract

Requirements for collateral contract (cc)

  • Statement [oral or written] must be promissory
  • Intended to induce B to enter into main written contract.
  • Actual inducement [supplies consideration], so B must have actually been induced.
  • Must not contradict terms of Head Contract

Two Types of Collateral Contracts

  • Collateral promise can be bi-partite or tri-partite

Bipartite Collateral Contracts

  • Parties to collateral contract same as those in Head Contract, so only two parties
  • Shepherd v Ryde
  • Shepherd bought a block of land in a council subdivision which was across the road from a park
  • This park was shown in the planned subdivision and in a pamphlet given to Shepherd
  • He was also told the park would never be subdivided
  • Later, the contract of sale (head contract) did not mention the park
  • The High Court of Australia FOUND that the plans and the pamphlet contained a collateral undertaking by the council to adhere to the special features of the subdivision including the park
  • SO, in exchange for a promise by the council to protect the integrity of the subdivision, Shepherd then entered into the head contract.
  • SO the consideration he gave for the council’s collateral warranty was his entering into the head contract.

Tri-Partite Collateral Contracts

  • The collateral warranty is given by a party that is not party to the head contract.
  • These have been used to enforce promises made by salespersons that induce the promisee to enter into a contract with a third party (the car yard) opr perhaps a credit company.
  • The TPA now has provisions that govern this and the sales company and the credit company are now known as linked credit providers and there are provisions now that enable one to directly sue the person making the statement even if they are not privy to the contract.

Restricted Demand for Collateral Contracts

  • Broad interpretation of PER so better off looking at partly oral/partly written contracts.
  • But c.f. still recognised as exception in EquusCorp

Limitations of Collateral Contracts

  • Should not expect to find subject matter of warranty in Head Contract Shepperd v Council of Ryde
    • The written contract for the sale and purchase of land contained all the info of the sale the subject matter, the price, the parties the lot description
    • BUT the court found that the stability of the housing plan itself, including the subdivision was something upon which purchasers could implicitly rely, so you wouldn’t expect to find all that stuff about the subdivision in the actual contract of sale.
    • SO, the court HELD that it was acceptable in those circumstances that the pre-contractual statements did in fact give rise to an independent collateral warranty.
  • Collateral contracts will only ever be considered a warranty so damages are the only remedy, not termination of Head Contract Burns v MAN (Aust) Ltd (1986) 161 CLR 653
    • This can be a real problem particularly in the case of a TP collateral warranty
    • Someone bought a bid prime-mover from a car-yard
    • It was financed by a credit company
    • During negotiations, the salesperson had made a range of untrue statements about the truck which turned out to be untrue.
    • He wasn’t able to get out of the separate agreement with the credit company, his only option was in damages against the car company
    • Eventually, he was not compensated for the loss he suffered.
  • Collateral warranty must not contradict terms of Head Contract Hoyt’s v Spenser [see next quote]
  • Summary of Hoyt’s
  • There was a contract of lease and the landlord himself was a tenant
  • SO building was owned by a distant landlord who leased it to another who sub-let it
  • The landlord said that he would not give notice to his tenant to terminate the lease unless he himself received notice from his own landlord
  • BUT there was in fact a term in the lease which said he could terminate by giving four weeks notice
    • BUT he said he won’t enforce that term unless he himself was given notice
  • Later, he purported to terminate the lease without having been given notice himself
  • So, the lessee attempted to argue, inter alia, that his pre-contractual oral proise gavce rise to a collateral warranty
  • High Court of Australia HELD that it didn’t because it conflicted with an express term of the head contract for lease.
  • “The truth is that a collateral contract which may be antecedent or contemporaneous… being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or in part for the promise contained in the collateral contract, it is wholly inconsistent… contention that the other party is not to have the full benefit of the main contract.” (1919) 27 CLR 133, 147.

Criticisms of Hoyt’s

  • Because a collateral warranty is often made to allay fears about express terms in the head contract it is unconscionable to resile, (Seddon, A Plea for the Reform of the Rule in Hoyt’s v Spencer)
  • Its possible to circumvent the no conflict requirement by arguing completely independent causes of action such as deceptive or misleading conduct or estoppel
    • Redundancy of rule in light of s 52 and estoppel [see notes in reading guide-do later]
    • So you can’t use contract law as remedy for this promise but you can use equity or statute
  • BUT, since Equuscorp, the High Court of Australia has shown no inclination to change and is basically saying, sign a written agreement at your peril. Even if it doesn’t have all the terms you want – too bad.
    • Its trying to discourage commercial parties not to rely on pre-contractual statements.

Incorporation of terms in context of Partly Oral/Partly Written Contracts

  • Signed written contracts not intended to be sole repository of parties’ agreement so supplemented by extrinsic oral or written material [already discussed under parol evidence rule]
    • But court later finds out that it was not intended to be the sole record so it admits extrinsic evidence of previous correspondence or conversations
    • This is an exception to the PER
  • Oral contract but one party seeks to rely on unsigned statements displayed or delivered to other party [eg, exclusion clauses on back of ticket or in catalogue]

Unsigned Written Material incorporated by actual or reasonable notice

  • Party seeking to rely on material must show that other party had actual or reasonable notice of clause prior to contracting
  • Where exclusion clause, must also show clause does not contravene any statutory provisions. E.g.-TPA ss 68 and 68A prohibit exclusion clauses in consumer contracts that oust statutory implied terms [covered in LAW2CCC]
    • So simply cannot rely only on the common law

Actual Notice

  • If material is read and the material is promissory, it’s a term.
  • Only issue is whether material promissory or not [except in case of exclusion clauses where only issue interpretation of clause]
  • E.g.-advertisement in Trading Post
    • The descriptive statements are potentially terms because are a representation of fact
    • BUT descriptions can be promissory

Reasonable Notice

  • A reliance on unsigned material that has not been read.
  • As long as reasonable notice of term/s, irrelevant if other party has not read them
  • If the notice is reasonable, then it can become a term even if the party affected by that term has not in fact read it.
    • This is driven by expediency factors because it would be impossible for businesses to ascertain actual notice.
  • But note - classic cases involve exclusion clauses in consumer contracts which would now be illegal [e.g.- dry cleaning contract in Causer v Brown]

Criteria relevant to reasonable notice

  • It should be noted that each of these cases are decided n their own facts.
    • The particular facts
    • The kind of document
    • Where the material was
    • What kinds of steps were taken to draw that material to the other party’s attention
  • Timing of notice
  • Notice must be given prior to the formation of the agreement otherwise it will be ineffective. Notice given after the contract has been concluded is putting the cart before the horse. Has to be before the magic moment.
  • After the contract has been concluded, then you can’t alter the terms unless you provide fresh consideration.
    • Olley v Marlborough Court
    • Ebay International AC v Creative Festival
    • Entertainment Pty Ltd [2006] FAC 1768
  • Type of document involved: e.g.
  • If a document is one that a reasonable person in the circumstances would expect to contain the terms of a contract then the mere presentation of that document would constitute reasonable notice.
    • Bill of Lading – contract for carriage of goods by sea
      • Will be bound even if they have not read them or do not know that it contains contractual terms.
      • This is because a bill of lading is a particular, widely recognised form of contractual document that is used in that context.
      • Whoever is legitimately in possession of it is bound by its terms
      • So it will be binding if you are dealing with a clearly recognised form of contractual relationship
      • Objective reasonable test
  • BUT if the terms are contained in something that a reasonable person would not consider contractual then the test of reasonable notice will usually require something much more active on the part of the party seeking to incorporate those terms. Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 (discussed in Toll)
    • Receipt Causer v Brown
      • Causer took his wife’s dress to the dry cleaner and afterwards he received a ticket, on the back of which was an exclusion clause
      • Court refused to take into account the exclusion clause because the receipt was only a receipt. – a docket to reclaim possession of the goods
      • SO it wasn’t reasonable to expect that it contained terms which purported to limit the DC’s liability
      • NB, this case would now be decided on statutory grounds
    • Travel brochure-Oceanic Sun
  • Nature of terms (the actual clause involved)

Oceanic SunOnerous Terms

  • Dr Fay injured in cruise in Greece
  • Issued proceedings in NSW but Oceanic sought stay arguing that the claim should have been issued in Greece
  • Contract allegedly contained “foreign jurisdiction” clause
    • Specifically stated that in the event of any proceedings they had to be brought in Greece


  • Had Dr Fay received timely notice of the foreign jurisdiction clause prior to the conclusion of the contract.
    • Was notice in ticket given prior to formation of contract?
    • Was notice in brochure reasonable given onerous nature of term?

Location of “Foreign Jurisdiction” Clause

    • In Conditions of Carriage within Ticket
    • BUT Ticket not received until Greece
      • So where was contract formed?
  • High Court of Australia HELD:
  • Contract formed in Sydney when “Exchange Order” given to Dr Fay
  • Passenger ticket not obtained ‘til Greece when Dr Fay handed over “Exchange Order”
  • Notice of terms in ticket too late

Reasons why Exchange Order Binding

  • Conventional ticket analysis not applicable because of arrangements contemplated in Exchange Order: -e.g.- right to forfeit fare
  • SO you can’t have a bet each way. You can’t impose terms in Sydney and then argue that the contract was not concluded until Athens.
  • Was notice in the brochure reasonable or sufficient?
  • Because the notice was given in Greece and it came too late, then the court had to decide whether OS had taken any other attempts to bring the clause to his attention before the contract was formed.
  • In the brochure there was a clause which stated that the terms & conditions were contained within the ticket.
  • BUT two problems
    • The passenger ticket was not available
    • Fay did not read the brochure
      • SO the brochure is not a contractual document. If you are going to give notice of terms within such a document, it seems that you actually have to point them out.

See also Ebay International AC v Creative Festival Entertainment Pty Ltd [2006] FAC 1768

  • Actually a case about deceptive or misleading conduct
  • Whether a statement is false or misleading depends on whether it is at the time it is made.
  • It was an unmeritorious attempt by ebay to allow scalpers to use its site to sell tickets
  • SO it argued that a particular term in Creative Festival Entertainment’s ticket was deceptive or misleading because notice of that term had come too late.

Was Notice in Brochure Sufficient?

  • Terms of Brochure
    • “Transportation of passengers governed by terms and conditions printed on the Passenger Ticket contract which may be inspected at any Sun Line Office”
  • Notice insufficient:-
    • Unusual nature of term (Brennan J)
    • Brochure not contractual in nature (Wilson and Toohey)

Onerous Nature of Terms

  • Greater steps may be required –
    • Must be clearly set out or
    • Must be readily accessible
  • Thornton v Shoe Lane Parking [1971] 1 All ER 686
    • A clause excluding liability on the part of a car park operator, not just for damage to a vehicle but for personal injury suffered by anyone using the car park should be highlighted (per Denning LJ)
  • Baltic Shipping v Dillon (Dillon’s Case) (1991) ASC 56-039 at 56, 640-64 per Kirby P
    • The plaintiff, Mrs Dillon, booked a cruise following the death of her husband around NZ
    • At the time she booked her ticket she paid a deposit and several days later she received a booking form which stated that a contract of carriage was made with a shipping company only at the time of issuing tickets
    • The booking form said that the trip would be subject to the terms in the ticket and that these could be found at the company’s offices.
    • The court accepted that the contract was made when the ticket was issued and this gave effect to what was set out in the booking form
    • BUT by the time the ticket was issued, it was too late to give her notice of the terms in the ticket.
      • One of the terms was a massive exclusion clause
    • SO the court said that because the ticket contained onerous terms and the ticket wasn’t issued until the contract had already been concluded then the notice came too late.
    • SO court said that the company should have given advance notice of those terms prior to her receipt of the ticket. – Notice in the booking for was insufficient.
  • Also, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] All ER 348

  • Bob sells a forklift to Dave for $50, 000. Before deciding to buy the forklift, Dave asks whether it is “mechanically sound”. Bob tells Dave that the forklift is “fine” and is “in very good mechanical condition”. Dave then agrees to buy the forklift. Upon payment, Dave receives an invoice. At the foot of the invoice, there is a statement, “For conditions of contract, please see over.” On the back of the invoice is an exclusion clause limiting Bob’s liability for any loss or damage howsoever arising to $100. The forklift turns out to have serious mechanical problems.
    • Do any of Bob’s statements form part of the express terms of the contact? [Actual notice so incorporation not issue, but still must assess if statements promissory]
    • Can Bob rely on the exclusion clause? [Reasonable notice? Scope of exclusion clause?]

Incorporation by Prior Course of Dealing

  • Terms may be implied into contact by prior consistent and repeated course of dealings
  • SO it may be possible to do this even where the usual requirements for reasonable notice have not been made out.
  • A party may be able to rely on a regular course of dealing to cure defects in the notice it has given to the other party.
    • Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379, 390 (E)
      • A man caught a ferry in Sydney and entered a private area which had a sign clearly saying that one has to pay one penny to leave this dock.
      • He entered then changed his mind and tried to come back out.
  • Henry Kendall v Lillico (ENGLAND)
    • There was a contract for the sale of goods over the phone.
    • This was the way the two parties had been dealing with each other for years
    • The defendant seller sought to rely on a sold note which was a contractual document evidencing the contract over the phone
    • SO purchaser was aware of but had not read the terms contained in the sold note
    • There was a problem with the goods so the buyer sought to bring an action for breach of contract
    • The defendant seller sought to rely on an exclusion clause in the sold note.
    • HELD
    • The purchaser was bound by the term because the seller had continuously made the terms known to the buyer so when the buyer placed an order, it was reasonable for the seller to presume that the buyer did so on those terms
    • OR the purchaser by its conduct represented to the seller that it was accepting its terms. – It had the opportunity to reject those terms. The buyer had acquiesced in these terms
    • SO – where a party seeks to extablish incorporation by a prior course of dealing, by relying on something in which notice is given too late, it is not necessary to prove that the other party had actual knowledge of those terms.
  • Hill v Wright - Australia
    • There was a contract for the carriage of good by the defendant
    • It was over the phone
    • After carriage the defendant carrier would always ask the plaintiff to sign a delivery document which contained terms on the back
    • The goods were damaged and the plaintiff sued. The defendant sought to rely on the exclusion clause
    • The terms were only handed over after the deal was done so you wouldn’t apply the signature rule in a case like this because it was a situation where the court said that the contract was long concluded.
    • The plaintiff admitted that the employees knew of the terms but not their content
    • HELD: The court rejected the defendant’s argument that conditions contained in the delivery document tended to the plaintiff after the deal had been finalised were incorporated into the contract by a prior course of dealing
      • The plaintiff hadn’t read the terms and
      • The terms were contained in a document tendered for signature after the deal had been concluded therefore it was the court’s opinion that the document was a receipt rather than a contractual document
    • SO actual knowledge of the contents were necessary to raise the implication that the parties were contracting on those terms
  • This decision tells you that the opportunity for arguing incorporation by prior course of action in Victoria is very limited. Have to be able to show:-
    • That the party who’s bringing the action was actually aware of those terms

  • Incorporation by Reference
    • If you are dealing with a signed written contract then no question of whether or not a party has actual knowledge of terms arises.
  • Inconsistency between terms expressly negotiated and those incorporated by reference
    • Fitzgerald v Masters (1956) 95 CLR 420, 426-7
    • Godecke v Kirwan (1973) 129 CLR 629

Promissory Aspect

  • Before a written or an oral statement can be classified as a term, it must be found to contain a promise.
  • Any statement relied on as imposing obligation must be promissory [except exclusion clauses and contingent conditions]
  • Applies to all statements whether oral or in writing which meet incorporation requirements

Applies to all contracts

  • Statements in formal contracts usually promissory – no issue usually arises so just about incorporation
    • So in a case like that, the issue will usually be the meaning of a term.
  • But not every statement in writing necessarily so formal
    • E.g. - partly oral/partly written contracts
    • There may be material recorded in writing and there will be a very real issue whether that material is promissory or not.
  • Oral contracts
    • Where one party alleges that a particular statement is a term of the contract, it will be necessary to show that that statement, properly incorporated, contains a promise.

What is a Promise?

  • Make an undertaking to guarantee the truth of a particular statement
  • Party making statement must intend to guarantee truth of statement [ie-warrant its accuracy]
  • The question of whether a statement is a promise will intend on the intentions of the parties as objectively ascertained
  • Test objective, not subjective - Equuscorp Pty Ltd [2004] HCA 55 at [33]
    • The legal rights and obligations of the parties turn on what their words and conduct would be reasonably understood to convey, not on actual beliefs or intention.
    • SO, what would a reasonable person, in the position of the other party have understood the statement to mean?

Possible Classifications

  • Statements can be:
    • Promises
    • Representations
      • A statement of fact.
    • Opinions
    • Sales puffs

Contractual Remedies

  • Classification affects remedies
  • If statement term:
    • damages for breach of contract; and
    • right to terminate depending whether term
      • Essential term or condition; or
      • Inessential term or warranty

Non-Contractual Remedies

  • If statement mere representation;
    • Rescission or partial rescission
    • No damages for innocent misrepresentation at common law
  • Possibly damages for:
    • tort of deceit;
    • negligent misrepresentation; or
    • statutory remedy for deceptive or misleading conduct
  • If statement mere opinion or puff:
    • No remedy for misrepresentation
    • But may have remedy for deceptive or misleading conduct

Language of Statement

  • Parties often use the language of promise, such as ‘I promise or I warrant etc…’
  • But not just matter of form
    • “The distinction between promises and other statements cannot be merely a matter of form. A statement in a non-promissory or representational form can still be a promise if this can be inferred from all the circumstances.” [Cheshire and Fifoot 8th ed, p 395]
  • ALSO
  • Reluctance to subject commercial contracts to minute linguistic analysis Banques Brussells Lambert SA v Australian National Industries Ltd
    • Involved a letter of comfort
      • Usually used in circumstances where one of the parties is about to loan some money to a third party and want some kind of security
      • So they approach someone for a guarantee and that person is reluctant to do that so they send a letter of comfort instead
      • Letters of comfort are often given by parent company in relation to their subsidiaries
    • The court expressed the view that they would become irrelevant in contractual determination if they allowed a minute linguistic analysis to dominate their reviewing of contractual documents
    • “We take this opportunity to confirm that it is our Practice to ensure that our affiliate Speedley Securities Ltd will at all times be in a position to meet its financial obligations as they fall due.”
  • But cf CBA v TLI Management Pty Ltd [1990] VR 510
    • TLI was a company seeking to take over another company that was in a bad way
    • The bank agreed to extend the overdraft to the weak company in exchange for an undertaking from TLI that it would repay the overdraft as soon as the take over was completed
    • Takeover fell through and sued TLI to recover the money
    • BUT court FOUND that the statements by TLI were too vague to amount to a contractual promise.
  • ALSO
  • Puffs and hyperbolic statements
    • Because these are not reasonably to be regarded as anything other than wht they are.
    • This is reflective of the common law’s acceptance that a certain amount of hyperbole is normal.
  • Statements of opinion
    • Usually lack the element of guarantee necessary to constitute a promise
  • Tentative or uncertain language JJ Savage v Blakney
    • The respondent bought a motor cruiser that was a dud.
    • He brought an action for the breach of an alleged collateral contract contained in a letter
      • Letter written by boat builder recommending particular Size engine with “estimated speed 15 MPH
    • The court recognised that the statement was important and the buyer had relied on it
    • BUT HELD that its not enough that a statement induces entry, it must also be promissory so ‘estimated speed’ was too tentative.
  • Intention to induce not sufficient if statement not promissory
    • BUT it is important in determining if pre-contractual statements are promissory or not
    • This is particularly the case when the person making the statement has more knowledge or info at their disposal.
  • But if statement reasonably likely to induce and in fact induces, it may support prima facie inference of promise
    • Ellul v Oakes (1973) 3 SASR 377, 387 (Zelling J)
      • Plaintiff bought land after reading real estate listing form which noted land was sewered when it had septic tank
      • The brochure was issued by the Real Estate Agent to potential buyers.
      • Owner did intend form should go out to the world as accurate description of the property and be accepted as such by potential purchasers
      • HELD: Where a statement is intended to induce and in fact does induce, it seems that the statement is prima facie a term and the onus is then on the party making that statement to displace the term.
    • SO, descriptive statements about the nature of the subject are often contractual in nature because they are intended to induce and often have that effect (to proceed with the sale)
      • This case also illustrates the role of the relative skill and knowledge of the parties. It related to a fact of which the purchaser was necessarily ignorant.

Knowledge and skill of statement maker

  • Ellul v Oakes
  • Oscar Chess Ltd v Williams [buyer more skilled]
  • Dick Bentley Productions v Harold Smith (Motors) Ltd [buyer less skilled] [see written notes]

Timing of Notice

  • The longer the gap between the making of the statement and the forming of the contract, the harder it is to construe the statement as promissory and thus a term
  • Van den Esschert v Chappell [1960] WAR 114
    • White Ants Case
    • A purchaser asked just before the signing of the contract whether the house was free of white ants
    • The vendor said it wasn’t, if there had been any I would have taken steps to eradicate them
    • There was no mention made of white ants in the contract of sale
    • The statement was found to be promissory
      • Because it was made immediately before the contract was signed and
      • The question was obviously important to the purchaser and tipped him over the line
    • So contract was found to be partly oral/partly written
    • SO, the purchaser could recover damages for the cost of repairs


  • A farmer bought a harvester and he did so in reliance on a salesman’s claim about the capacity of the machine.
  • The statements were found to be a mere estimate and thus not promissory.
  • “The distinction between representation and promise is clear enough in law but is one which laymen would probably find hard to understand, since it depends on niceties of language in conversations recounted, often years afterward, by persons who would not have been conscious of the significance of the particular words used. The search for “promissory language” becomes somewhat unreal and the distinction between inducement and promise very fine. However, these are the criteria.”
    • Ross v Allis-Chalmers Australia Pty Ltd (1980) 32ALR 561

Test yourself

  • Bob sells a forklift to Dave for $50,000. Before deciding to buy the forklift, Dave asks whether it is “mechanically sound”. Bob tells Davethat the forklift is “fine” and is “in very good mechanical condition”. Dave then signs the contract of purchase without reading it but the contract does not contain any of Bob’s statements about the quality of the forklift. The forklift turns out to have serious mechanical problems. The contract contains an exclusion clause limiting Bob’s liability for any loss or damage howsoever arising to $100.
    • Do any of Bob’s statements form part of the terms of the contact?
    • If so, on what basis? [Parol evidence rule and its exceptions]
    • Can Bob rely on the exclusion clause? [Rule as to signature]

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