#5387 - Content Exclusion Clauses - Contract Law

Content of a Contract & Exclusion Clauses

1. Interpretation/Construction

• Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896:

  • Principles of construction:

    • Interpretation is the ascertainment of meaning which the document would convey to the reasonable person having all the background knowledge which would reasonably have been available at the time of conclusion;

    • Subject to the requirement of reasonableness everything which may affect the way in which the language in the document may be understood can be taken into account, except previous negotiations and declarations of subjective intent;

    • That background may indicate that the wrong words or syntax was used;

    • The rule that words should be given their natural and ordinary meaning reflects the proposition that it is not easily accepted that people make linguistic mistakes.

• Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38: C entered into contract with developers for them to obtain planning permission, build and lease properties. Dispute arose as to the term ‘additional residential payment’. Definition was provided in the contract but C sought to rely on pre-contractual negotiations to favour his interpretation.

  • Although the court does not easily accept that a linguistic mistake has been made, where it is clear that something has gone wring the parties will not be bound by their strict words; if it is clear what correction ought to be made the court will do that;

  • Refusal to overrule the rule that cannot take into account pre-contractual negotiations in the basis that would introduce uncertainty and the remedies of rectification and estoppel by convention can mitigate any serious injustice in this regard.

• Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44: When D failed to pay sums due entered into negotiations ‘without prejudice’ resulting in a settlement. C then tried to bring an action for the full sum.

  • Owing to its importance the boundaries of the without prejudice rule should not lightly be eroded;

  • The process of interpretation should be the same whether negotiations were entered into or not. Thus if there is a relevant objective fact to be gleaned from them it can be taken into account in construing the contract.

2. Implied Terms

• The Moorcock (1889) 14 PD 64: P agreed to discharge vessel which, to be done safely, must be done in low water. D had not investigated whether the port was safe. Vessel sustained damage. Claim brought.

  • The law implies terms with the object of giving efficacy to the transaction and preventing such failure of consideration as cannot have been in the contemplation of either side; the implication is raised from the presumed intention the parties.

  • In business transactions the aim is to imply terms to give them business efficacy which must have been intended by the businessmen.

  • Business could not be carried out unless there was an implied term to make reasonable investigations of the river bed.

• Liverpool CC v Irwin [1977] AC 239 : Agreement in unilateral terms for a tenancy. Issue as to whether landlord Council had implied obligation to keep common areas of rented flats in repair.

  • The first step must be to ascertain what the contract is.

  • The court may be willing to add terms to an apparently complete bilateral contract to spell out what the parties know and would, if asked, agree to be part of the bargain. In other cases it may add a term on the ground of necessity. But is cannot imply reasonable terms.

  • This case is another category where the parties have not fully stated the terms of the contract. There can be no doubt that there must be an implied easement for use of common parts; it is a test of necessity as they are the essentials of a tenancy.

  • Were willing to imply a term saying that the obligation bore the standard of reasonableness only as that was all that was required.

• Scally v Southern Health & Social Services Bd [1991] 4 All ER 563: C’s were employees who paid into pension scheme. Had to pay for 40 years to get the benefit although there was an option to ‘purchase years’. Regulations said that E’s should draw this to the attention of C’s. They were not so informed and brought an action upon discovery. Lord Bridge.

  • Since the right cannot be exercised unless C is aware of it, it is necessary to imply an obligation to bring it to his intention to render efficacious the very benefit which the contractual right to purchase years was intended to confer.

  • The situation might be different where the pension rights arise from a separate contract from the employment contract.

Sale of Goods Act, ss12-15A

• Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 [16]-[27] : Lord Hoffmann.

  • Court cannot introduced terms to a contract simply to make it fair or reasonable. It is only concerned to discover what the instrument means. That meaning is to be ascertained by reference to the ICS v West Brom Building Society test i.e. objective one.

  • The implication of a term is not an addition to the instrument but simple spells out what it means i.e. an exercise in construction.

  • In every case where implication is sought, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.

  • Notions of efficacy or bystanders should not be treated as different or additional tests as they are simply ways of expressing the idea that the implied term must spell out what the contract actually means.

• Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531: Issue as to whether a voyage charterparty contained an implied (absolute) term requiring charterers to nominate a safe berth for the vessel.

  • Absent an implied term the default position is that the loss lies where it falls.

  • It must always be necessary to imply the term and that term must be consistent with the rest of the contract to be implied. The latter condition was not satisfied in the present case.

• Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) [123]- [153]: Concerns question of whether English contract law has a doctrine of good faith and whether there is an implied duty of good faith with regards to the performance of the contract (although not at the negotiation stage). Mr Justice Leggatt.

  • Three main reasons have been given (by McKendrick) to explain the English hostility towards a general doctrine of good faith in English contract.

    • Method of English law is to proceed incrementally rather than by enforcing broad overarching principles;

    • Embodies an ethos of individualism which permits people to protect their own interests;

    • A fear that recognising a requirement of good faith in the performance of contracts would create uncertainty.

  • Then considers the fact that English law seems to be swimming against the tide as a number of other countries recognise the duty. Further other sources in English law have notions of good faith e.g. UCTA, negotiation of insurance contracts.

  • A norm which underlies almost all contractual relations is an expectation of honesty (objectively) . It is so obvious that do not need to expressly say it. May be a term which is implied into contract as needed to give business efficacy to such transactions. Another similar aspect is fidelity to a bargain.

  • Further points in favour of recognition:

    • Because the content of the duty is heavily dependent on context and is established through a process of construction, its recognition is entirely consistent with the case by case approach favoured by the common law.

    • As the basis of the duty of good faith is the presumed intention of the parties and meaning of their contract, its recognition is not an illegitimate restriction on the freedom of the parties to pursue their own interests. The essence of contracting is that the parties bind themselves in order to co-operate to their mutual benefit. The obligations which they undertake include those which are implicit in their agreement as well as the explicit.

    • A consequence of the fact that the duty is based on the parties' presumed intention is that it is open to the parties to modify the scope of the duty and, in principle at least, to exclude it altogether.

    • The fear that recognising a duty of good faith would generate excessive uncertainty is unjustified. There is nothing unduly vague or unworkable about the concept. Its application involves no more uncertainty than is inherent in the process of contractual interpretation.

  • “In the light of these points, I respectfully suggest that the traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent that it still persists, is misplaced.”

3. Exclusion Clauses

(i) Incorporation

(a) Signature

• L’Estrange v Graucob [1934] 2 KB 394: B purchased slot machine and signed a form containing the essential terms f the contract. When product defective S claimed benefit of exclusion. B said had not read b/c small print.

  • The present case is not a ticket case and is distinguishable from them. In those cases and others where there is an unsigned document it is necessary to prove that a party was or ought to have been aware of its terms and conditions. This has no application where a document has been signed.

  • When a document containing contractual terms is signed, then in absence of fraud or misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not.

• Curtis v Chemical...