1. Copyright Guy Harley 2008 1 Revision

2. Copyright Guy Harley 2008 2 Consideration  Consideration  What is it?  Value of consideration  Past Consideration  Part Payment of a debt  Promise to perform an existing contract

3. Copyright Guy Harley 2008 3 Terms of the Contract

4. Copyright Guy Harley 2008 4 Terms  Statements that form part of the contract  Promises which are intended to be kept  Distinguish from  Puffs  Exaggerated sales statement  Representations  A statement of fact that induces another person to enter into a contract

5. Copyright Guy Harley 2008 5 Terms  Terms can be  Express  In writing  Oral  Partly in writing and partly oral  Implied  By the Courts  By legislation

6. Copyright Guy Harley 2008 6 Express Terms  The terms of the contract are ascertained by examining the evidence  Not all pre-contractual statements become terms of the contract

7. Copyright Guy Harley 2008 7 Express Terms  Meaning of the terms may not be clear  Where the parties have used language that is incapable of any precise meaning the contract may be void for uncertainty  It is not the role of the Court to make a bargain for people  However, the Courts are reluctant to destroy a bargain

8. Copyright Guy Harley 2008 8 Reasonable Bystander Test  Which statements and representations would a reasonable bystander, aware of the circumstances of the case, regard as promissory?  The test is objective  Parties actual intention is irrelevant

9. Copyright Guy Harley 2008 9 Reasonable Bystander Test - Guidelines  Timing of Statement  Was the statement in writing  Did one party have special skill or knowledge  How objectively important is the representation to the whole deal  What words were used

10. Copyright Guy Harley 2008 10 Timing of Statement  How much time elapsed between the representation and the making of the contract?  Statements made only once early in negotiations are less likely to become terms.  Van Den Esschert v Chappel (Graw 9.1.5)

11. Copyright Guy Harley 2008 11 Statement in Writing  If the statement was included in a document drawn up by the parties then this is good evidence that the parties regarded the statement as sufficiently important to be a term  Alternatively, if it is left out, that indicates that the parties did not intend it to be a term.  Routledge v McKay  This is not conclusive of itself, it is merely one matter to be considered

12. Copyright Guy Harley 2008 12 Special Knowledge  Did one party rely on the other’s expertise or special knowledge rather than form its own judgement  Oscar Chess v Williams (Graw 9.2.5)  Dick Bentley Productions v Harold Smith Motors (Graw 9.2.5)

13. Copyright Guy Harley 2008 13 Importance of Statement  Must be judged in the context of the negotiations  Crouchman v Hill

14. Copyright Guy Harley 2008 14 Words Used  The more precise the language, the more likely it is a term  Ross v Allis-Chalmers Australia

15. Copyright Guy Harley 2008 15 Parol Evidence Rule  Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement  Courts will not let a party ‘subtract from, add to or contradict the language of the written agreement’

16. Copyright Guy Harley 2008 16 Parol Evidence Rule  Extrinsic evidence is permitted where it can be proved that:  Parties did not intend written document to record whole of the agreement  Written document inaccurately records the parties agreement  Terms must be implied to make the agreement workable  Parol evidence rules is avoided if there is a Collateral Contract

17. Copyright Guy Harley 2008 17 Terms implied by the Courts Implied as a matter of lawImplied as a matter of fact Past DealingsBusiness efficacyTrade Custom Implied Terms Terms implied by Statute

18. Copyright Guy Harley 2008 18 Terms Implied by the Courts  Cannot conflict with express terms  Must not be unreasonable or unjust in the circumstances  Implied as a matter of law  Common situations which are so settled that terms “go without saying”  Implied as a matter of fact  Arise out of the particular facts of the case

19. Copyright Guy Harley 2008 19 Terms Implied as a Matter of Law  Professionals and Clients  Professional must use reasonable care and skill  Service Contracts  Provider must take reasonable care and skill in providing the service  Service must be reasonably fit for the purpose for which it was acquired  Costa Vraca v Berrigan Weed & Pest Control

20. Copyright Guy Harley 2008 20 Terms Implied as a Matter of Law  Work and Materials  Contractor must use reasonable care  Services must be fit for the purpose for which they were acquired  Materials must be of good quality  Reg Glass v Rivers Locking Systems  Helicopter Sales v Rotor Work

21. Copyright Guy Harley 2008 21 Terms Implied as a Matter of Law  Hire Contracts  Goods are reasonably fit for the purpose for which they are hired  Landlord & Tenant  Landlord must give the tenant ‘quiet enjoyment’ of the premise  Tenant must  Pay rent  Act in “tenant-like” manner

22. Copyright Guy Harley 2008 22 Terms Implied as a Matter of Law  Employment Contracts  Employer must  Provide a safe system of work  Not require employee to do an unlawful act  Employee must:  Obey reasonable instructions  Use reasonable level of skill and competence  Act in good faith to employer  Keep employer’s trade secrets confidential

23. Copyright Guy Harley 2008 23 Terms Implied as a Matter of Fact  Past dealings  Custom or trade usage  To make the contract effective

24. Copyright Guy Harley 2008 24 Past Dealings  Term is clearly identifiable  Previous dealings are numerous and consistent  Present dealing fits into the course of dealing  No conflict between implied term and an express term  Henry Kendall v William Lillico

25. Copyright Guy Harley 2008 25 Custom or Trade Usage  Can state term with precision  Custom is so well known & widespread that all contracts can be said to have the term  Custom is reasonable  No conflict with an express term  British Crane Hire v Ipswich Plant Hire

26. Copyright Guy Harley 2008 26 To Make a Contract Effective  Term is capable of clear and precise expression  The term is necessary to make the contract effective not just reasonable  The term is obvious (“officious bystander test”)  The term is fair & equitable to both parties  No conflict with an express term  The Moorcock  Codelfa Constructions v State Rail Authority

27. Copyright Guy Harley 2008 27 Is It a Term of the Contract  The approach of the Courts can be demonstrated by reference to Exemption Clauses  Similar concepts apply to all clauses

28. Copyright Guy Harley 2008 28 Exemption Clauses  A clause that limits or excludes the consequences of a breach of a party’s obligations  Courts are biased against them  Bias is less noticeable in commercial contracts  Courts adopt a 2 step process  Has the exemption clause become a term of the contract?  If so, does it cover the breach in question?

29. Copyright Guy Harley 2008 29 Is the Exemption a Term of the Contract?  Essentially the same test as for all terms  An exclusion clause cannot be incorporated after the contract has been made (e.g. parking ticket)  Past dealings may imply an exemption clause  Henry Kendall v William Lillico  Hollier v Rambler Motors

30. Copyright Guy Harley 2008 30 Is the Exemption a Term of the Contract?  Signed documents will usually be binding even if the party was unaware of the term unless  Signed document could not reasonably be regarded as likely to contain contractual terms  Chapelton v Barry  Causer v Browne  Estoppel exists  Exemption clause has been misrepresented  See Curtis v Chemical Cleaning Co

31. Copyright Guy Harley 2008 31 Is the Exemption a Term of the Contract?  Unsigned exemption clauses will be binding if  The innocent party was aware of it; or  reasonable notice of it has been given to the innocent party (Interflora v Stiletto Visual Programs) before the contract is made

32. Copyright Guy Harley 2008 32 Reasonable Notice  What is reasonable notice depends on:  The nature of the document;  The nature of the transaction; and  The nature of the exemption clause.  Would it be reasonable to expect the document to contain an exemption clause (e.g. a receipt)

33. Copyright Guy Harley 2008 33 Reasonable Notice  Is the transaction one where you would expect an exemption clause to exist  The wider the exemption the greater the steps to be taken to bring it to the attention of the other party  Cases  Thornton v Shoe Lane Parking  Parker v South Eastern Railway  Oceanic Sun Line Special Shipping v Fay  DJ Hill & Co v Walter H Wright Pty Ltd

34. Copyright Guy Harley 2008 34 Does the Clause Cover the Breach?  Courts will examine the clause carefully to determine its effect and limit its scope where possible  Generally, the Courts will give effect to the parties intentions as evidenced by the natural and ordinary meaning of the words  There are 3 rules that courts use to limit exemption clauses:  The Contra Preferendum rule  Negligence Clauses  The Four Corners Presumption

35. Copyright Guy Harley 2008 35 Contra Preferendum Rule  Any ambiguities in the exemption clause will be construed against the party seeking to rely on the clause  Andrews Bros v Singer Car Co  Alex Kay v General Motors Acceptance Corp & Hartford Fire Insurance

36. Copyright Guy Harley 2008 36 The Negligence Rule  Liability for negligence may be expressly or impliedly excluded but if the words could reasonably be applied to protect against some ground of liability other than negligence, then liability for negligence will not be excluded  White v John Warick & Co  To exclude liability for negligence, clear words are required  Tech Pacific v Air Pacific

37. Copyright Guy Harley 2008 37 4 Corners Presumption  The exemption clause will only cover matters within the 4 corners of the contract  Whether an event falls outside the contract depends on the reasonable person test – would a reasonable person aware of the terms of the contract conclude that the parties must have had the relevant event in mind in drawing up the contract.  Sydney Corporation v West  TNT v May & Baker  Darlington Futures v Delco Australia

38. Copyright Guy Harley 2008 38 Statutory Reforms  In many cases, it is Illegal to attempt to exclude terms implied by statute e.g. Trade Practices Act  Attempting to exclude statutory liability (where not permitted) may be misleading and deceptive conduct contrary to section 51 of the Trade Practices Act

39. Copyright Guy Harley 2008 39 Conditions and Warranties  Not all terms carry the same importance  A condition is a core term of the contract  Goes to the essence of the contract  Tramways Advertising v Luna Park  Associated Newspapers v Bancks  Warranties are non-core terms of the contract

40. Copyright Guy Harley 2008 40 Conditions and Warranties  Intermediate terms will be conditions or warranties depending on the seriousness of the breach  A breach so serious as to deprive the innocent party of substantially the whole benefit of the contract  Hong Kong Fir Shipping Co v Kawasaki

41. Copyright Guy Harley 2008 41 Termination by Breach  Breach of a condition, or a serious breach of an intermediate term, will allow termination ConditionIntermediate Term Warranty Damages and\or Termination Damages Only If SeriousNot Serious

42. Copyright Guy Harley 2008 42 Conditions and Warranties  To determine if a condition, courts will examine  The way in which the term is expressed  The likely consequences of a breach  The objective importance of the term to the overall contract  Whether damages are likely to be an adequate remedy (Shevill v Builders Licensing Board)  The use of the word “condition” is not conclusive  Wickman Machine Tool Sales v L Schuler AG  Parties can expressly state that it is an essential term

43. Copyright Guy Harley 2008 43 Conditions and Warranties  Terms implied by statute are often expressly stated to be conditions or warranties  Time  In a mercantile contract the presumption is that it is a condition  Bunge Corp of NY v Tradax Export SA Panama  In other contracts it is usually a warranty  Bettini v Gye  Often made a condition by express words “time is of the essence”

44. Copyright Guy Harley 2008 44 Collateral Contracts  A second contract that exists in addition to the main contract  The collateral contract contains the oral terms whilst the main contract contains the written terms

45. Copyright Guy Harley 2008 45 Collateral Contracts - Types  Two types:  Where the consideration for the collateral contract is the party entering into the main contract  Sheppherd v Council of Ryde  Where the consideration for the collateral contract is the party entering into a contract with a third party  Wells v Buckland Sand

46. Copyright Guy Harley 2008 46 Collateral Contracts - Requirements  The statement must be promisory  E.g. “I guarantee”, “I assure you”  Savage v Buckley  Promissory statement induced by the other party  Not a term of the main contract  Not contain terms inconsistent with main contract