Terms (Simon)

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Incorporation (Exclusion Clauses)

Back 1

Ideas of freedom of contract would suggest that mutually beneficial, voluntarily agreements should be upheld regardless of what they contain- even if counter productive to allow exclusion of liability.

-Allows being able to rely on contract

-Upholding EC's respects our autonomy.

Front 2

Was the clause incorporated?

1. Signed documents

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Once you have signed a contract,it is presumed that you have accepted the clauses of the contract and intend to be bound, whether or not you have read the contract or know what they are.Objective approach in Contract law.

-Toll v Alphapharm

-Nalder & Biddle

- L'Estrange

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Toll v Alphapharm

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Conditions can be incorporated by another set of documents, but this must be done objectively

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Nadler & Biddle

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-Fishing company not happy with work done so claim breach of contract by N&B (no formal contract ever signed)

-N&B argue their exclusion clause on original tender document meaning liability is limited to only $75 000. However had given a job card to fishing company.

-Tender was never accepted...

-Job Card was not an extension of tender but about new work. Therefore old terms not incorporated.

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L'Estrange Principle

Back 5

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

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2. Unsigned Documents
(a) By prior course of dealing
(b) By reference

Back 6

Parker v South Eastern Railway:

- In unsigned documents, parties will be bound by a term, if there is actual knowledge of the term, or they have been given reasonable notice of the term.

- Reasonable notice can be proved through reference, previous course of dealing or trade custom.

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(a) Prior course of dealing

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Seven Electrical:

1. Exclusion clause was relatively common – not unusual.

2. 8 sales together over the past year.

3. MHS did not object to CYB’s terms in earlier transactions.

4. CYB always made it clear transactions were done on their terms.

5. Subsequent conduct of the parties – further orders were made between CYB and MHS, some even after the fire.

=prior course of dealing can suffice for this purpose

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McCutcheon

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Incorporation through previous course of dealings must be absolutely clear.

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(b) By reference

Back 9

Thompson

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Thompson

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Facts: Lady brought a ticket from the railway company and was injured on the train ride. Her ticket said, ‘ticket sold subject to conditions on the train timetable.’ Exclusion clause was onpage 522 of the timetable.

Held: Railway Company had done enough to provide reasonable notice of the exclusion clause.

NOTE: If clause is ‘onerous, unreasonable or unusual’ more notice will be required by the party seeking to rely on it.

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Thornton

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Lord Denning: ‘Red Hand’ Theory where a clause is so wide and destructive of rights. More needed to bring attention to the clause – red ink and red hand.

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Incorporation by trade custom

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Two Requirements:

1. Both parties must be in the same industry. 2. Parties must be of equal bargaining strength.

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British Crane Hire:

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“Supplier and user must be in wholly different walks of life, one must be an expert in the business and the other must not be,” for incorporation by trade custom to fail.

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Interpreting the clause

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Fundamental rule that clause interpreted like any other clause (meaning it would convey to reasonable person having all background knowledge available to person in that position)

Seven Electrical: Contra preferentum should also be applied if ambigious.

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Liquidated damages

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-Estimates of loss for specific breaches provided for in the contract ahead of time.
-Genuine attempts to say what the cost of breach is to each party.

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Penalty Clause (unenforceable term)

Back 16

If oppressive, will not be enforced

Front 17

Determining whether a penalty clause:

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-imposes an additional detriment on a party upon failure of primary stipulation.

-it is to force the party to perform obligations (Amaltal v Marhua: not penalty clause as no oppression b/c both parties were strong and commercially experienced)

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Andrews

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-It can be a penalty even if it isn't triggered by a breach of contract
-Fee forced you to perform= penalty

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Dunlop

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It is almost certainly a penalty if it is extravagant compared to greatest actual loss that could be suffered

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Interpretation

Back 20

Traditional Approach vs.

Modern Approach

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Traditional Approach

Back 21

-Certainty

-Practical

-Instead of talking about the parties’ intentions, we are talking about the strict meaning of the words in a contract.

-Limits flood gates opening.

-Cuts expense.

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Objective manner

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What the reasonable person would think if they had been privy to all the other information that the parties were.

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Plain, ordinary meaning preferred: Lord Hoffman

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"The rule that words should be given their natural and ordinary meaning reflects the common sense proposition that we do not often accept people have made linguistic mistakes in formal contractual documents"

-If no plain meaning= look further

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Parol Evidence Rule:

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Presumption of four corners doctrine (other evidence may not be adduced to contradict the provisions of a contract),

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Exceptions to traditional approach

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-Determining the Subject Matter: If what is written down on a document doesn’t identify what the contract is for then you can go outside the words of the document.

-Trade Usage: Possible to incorporate standard trade clauses

-Rectification: Correct the written document. -Estoppel by Convention: Party led to believe something means something by a convention – must perform the contract in accordance with the convention – estopped from relying on the strict legal words in the document.

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Modern Approach

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If contracts are about giving effect to the intentions of the parties, then we need to take into account the context of the words in the documents.

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Lord Hoffman's five principles

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-NZ law largely follows from the five principles of Lord Hoffman in ICS.

-Five principles were first accepted in NZ law by Boat Park.

-Principles have not been applied consistently in NZ law. Vector Gas: Now strong authority that prior and pre-contractual negotiations are now admissible, however on an unclear basis.

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Lord Hoffman's Five Principles (2)

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The background is any material available to the parties which would have affected the way in which the language of the document would have been understood by a reasonable man.

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Acceptable Extrinsic Evidence

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Lord Hoffman's second principle allowed courts to consider "matrix of fact" as acceptable extrinsic evidence.

Gibons: everything that would affect the reasonable person's understanding of the contract (now including subsequent conduct)

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Unacceptable Extrinsic Evidence

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Prior negotiations/ draft contracts (except to determine subject matter etc) declarations of subject intent.

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Vector Gas

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All judges approve the objective approach and deny any use of evidence of subjective intent. However negotiations/draft contracts can be used to support an estoppel or rectification claim.

-Case could have been decided under Lord Hoffman's fifth principle: it was clear from the context/background that something went wrong with the plain meaning language and the CA's result flouted business commonsense.

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Prior negotiations in NZ

Back 32

Tipping J

Wilson J

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Wilson J:

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-Allowed them only when the relevant term in question is ambiguous or where the ordinary meaning makes no commercial sense.

-This approach is inconsistent with comments from other members of the Court. Almost resurrecting the plain meaning rule which had previously been abandoned.

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Tipping J:

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-Allowed them with no caveat at all

- Holds basic principle of contractual interpretation is to ascertain what the parties intended the words to mean, in order to do so, it is necessary to have reference to context, and so it is always permissible to go outside the written words of the contract.

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Mistake

Back 35

(following s6 of the CMA)

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Is there a qualifying mistake?

Back 36

In order to qualify the subject matter of the mistake it must have been considered by the plaintiff and influenced their decision to enter into the contract

i.e. it must have been causative.

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Unilateral mistake

Back 37

-Requires a material mistake that is known to the other party.

Front 38

King v Wilkinson

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Plainly any purchaser would be misled by incorrect boundary fence and seller could not fail to appreciate this

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Tri Star

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Must be satisfied they actually knew- “known”requires actual knowledge; this may be inferred [from proved circumstances]. Wilfull blindness will suffice.

-(Constructive knowledge [that Y ought to have known of mistake] will not be enough)

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Common mistake

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- All parties [X and Y] to the contract were influenced in their respective decisions to enter the contract by the same[mistake].

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Bartley v Beale

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-Mistakes are common where both parties believed the same thing

- Where both X and Y thought basement could be legally used as bedroom - entered contract on this basis.

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Phillips v Phillips.

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Evidence of this common mistake can be inferred where the X and Y would of acted differently if they had knowledge [of …]

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Did the mistake bring about substantial consequences?

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Designed to protect unjust enrichment, while balancing sanctity of contract.

Slater:

Substantial consequences.

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Tri Star

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Traditionally cases focused on numerical values to determine the significance of a mistake

Front 45

MacIndoe v Mainzeal

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The question now is more weather the effect of the mistake is to "substantially reduce the benefit of the contract"

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Has the contract provided for risk allocation mistakes itself?

Back 46

If the risk of mistake is allocated in the contract then it generally won't fall within the CMA.
This is where exclusion clauses are important; they often put the risk of mistake on the mistaken party so there will be no remedy.

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Remedy

Back 47

Section 7 allows the Court to do what they think is just (usually leave contract on foot but adjust it). If mistaken party caused their own mistake this may be relevant.

Front 48

Implied Terms

Back 48

Traditional approach vs. Modern approach

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The traditional approach: The composite five-part test: BP Refinery

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1. Term must be equitable and reasonable.

2. Term must be necessary to give business efficacy to the contract.

3. Must be so obvious that it goes without saying.

4. Must be capable of clear expression

5. Must not contradict any express terms of the contract.

Front 50

Hickman v Turn & Wave

Back 50

-NZ COA said these terms are requirements per se but are useful considerations as to whether a term should be applied.
-No power to improve the contract just because we think it’s a good idea-Look to intention of parties and see if they intended this term of be included into K.

Front 51

Implied Terms: 5-Part test

Back 51

5-Part test is not a set of individual tests which must all be satisfied but each element is a useful indicator relevant to the ultimate question of what a reasonable person would have understood the contract to mean.