CONTENT AND CONSTRUCTION OF CONTRACT

General - Express Terms

Terms and Representations
A representation is ‘a statement, or assertion, made by one party to the other, before or at
the time of the contract, of some matter or circumstance relating to it Behn v Burness);
- a mere representation lacks contractual force;
- a false representation may constitute a misrepresentation and X may be able to rescind
the contract.

Factors to determine if terms or mere representations; none are conclusive, just determine
intention objectively:
1. importance of statement – more important = term
2. time passed since statement and agreement = short time in between = term
3. position of one party to the other to ascertain truth; better position (ie business) = term
4. whether statement subsequently omitted when agreement made into formal contract =
representation only
*Ellul & Ellul v Oakes (1972) 3 SASR 377

Time of the Statement

Harling v Eddy [1951] 2KB 739

Content of the statement

*JJ Savage & Sons Pty Ltd v Blakeney (1970) 119 CLR 435
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Existence of Writing (see also parole evidence rule – next week)

Knowledge and Expertise of Parties

*Oscar Chess v Williams [1957] 1 WLR 370 : F: Williams sold his car as 1948 model; in
fact it was a 1939 model; O sued for breach of contract claiming the statement of date was
a term of contract; H: UK COA held statement was NOT a term; court must look objectively
@ totality of evidence, what parties did; W simply looked @ registration paper, did not
intend the statement to be term of contract, was innocent misrepresentation

Dick Bentley v H S Motors [1965] 1 WLR 623 – F: DB bought 2nd hand Bentley from HS;
HS stated car traveled 20,000 m since fixed; statement false, DB sued HS for breach of
contract; H: UK COA held HS’s statement was a term and therefore liable for damages b/c if
a representation is made in the course of dealing for contract for very purpose of inducing
other party to act on it, and it actually DOES induce other party to act on it and enter into a
contract, prima facie this is grounds for inferring that it was intended to be a term of
contract; maker of representation can rebut this by showing innocence of fault; HS was car
dealer in position to know, or at least ascertain, the history of cars it was selling;
statement made had no foundation.

Collateral Contract - a separate contract containing 1 express terms, (eg in textbook, the
promise from P that drains on farm were in excellent condition), plus consideration from
promisee (entering into the main contract satisfies this) (Heilbut Symons & Co v Buckleton).

Elements:
1. the statement is promissory in nature, intended to be relied on to induce promisee to
enter main contract (JJ Savage v Blakney)
2. the promisee relied on the statement (JJ Savage v Blakney)
3. there is no inconsistency b/w main contract and alleged contract (Hoyt’s pLtd v Spencer)
4. the collateral contract must contain all elements of a contract (consideration is entering
into the main contract)
To establish collateral contract, representee must establish he entered into main contract in
consideration of the statement made by representor; that he would not have entered into
contract had the statement not been made; Heilbut v Buckleton – it is fundamental that
there be an ‘intention on the part of either or both parties that there should be a contractual
liability in respect of the statement’.

*JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 - statement must be
promissory, not representational to be a collateral contract.
F: B bought boat from JJ; JJ stated in a letter that boat’s engine would go 15 mph; it only
went 12 mph; B claimed the statement was a promise and consideration was entry into
contract to purchase boat; H: HC held statement was only opinion, which though was made
w/ the calculation of B entering into contract; what B should have done was sought a
promise from the appellant to make the statement legally binding; when letter was written,
negotiations for construction and delivery of boat not complete, B shd have required speed
of boat to be inserted in specification as condition of contract; or sought promise from
appellant that boat would reach 15 mph.

*Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 – terms in collateral contract cannot
contradict term in the main contract. F: H subleased premises from S; sublease stated S
could terminate lease @ any time during its currency on giving 4 weeks notice in writing; B4
expiry, S assured H that he would only terminate in certain, specified circumstances; S
subsequently terminated lease under none of those circumstances; H claimed assurance
was collateral contract and sought damages H: HC ruled against H b/c assurance was
inconsistent w/ main contract permitting termination in ANY circumstances

**NOTE: Sometimes the main contract contains an ‘entire agreement’ clause which is a
binding agreement that seeks to limit liability of parties to each other by excluding liability
based on pre-contractual statements and conversations unless these are expressly stated in
the contract; to exclude liability for breach of contract or misrepresentation re pre-
contractual statements/ conversations.
- Rationale: Innterpreneur Pub Companty v East Crown 2000:
To prevent a party after agreement made from finding any clause giving rise to a claim of
collateral warranty (ie cannot argue that any promises or assurances made in course of
negotiations have any contractual force if not in the contract); to prevent operation of
collateral contract!!!
- HOWEVER: In Australia, courts more likely to permit collateral contract even if
agreement clause inserted, depending on entire agreement clause (DKB Investments PLtd
v Belcote PLtd; Arnot v Hill-Douglas)
- If there is no such clause, the court will have to determine if the parties
intention was that the contract be wholly in writing!!!

In McMahon v National Foods Milk 2009 VCOA – if entire agreement clause expressly refers
to exclusion of collateral contracts, then collateral contract will not include part of the
contract; however, if no express reference, then there’s no reason why a collateral contract
shouldn’t be enforced for the reason that (given that it’s consistent w/ the main contract)
one party would never have entered the agreement but for the collateral contract.

It may be the case that an ‘entire agreement’ clause does not allow estoppel to give force to
a collateral contract because to do so in the case of Hoyt would prevent S from terminating
the sublease whenever he wanted given 4 weeks notice. Thus, the collateral agreement
would be inconsistent with the main agreement since the collateral agreement added extra
terms as to which circumstances H would terminate the sublease. Ie: estoppel would enable
H to succeed where no collateral agreement established due to entire agreement clause.
If a promise doesn’t give rise to a collateral contract because it is inconsistent with the main
agreement, for it to be enforced would mean that the main contract is unenforceable

3rd party collateral contract – the Hoyt’s rule doesn’t apply b/c there can be no inconsistency
between the main agreement and the collateral agreement as they are with two different
people.
Andrews v Hopkinson - H (Car dealer) made assurances to A about a car; A then went into
main agreement with BF (finance company); requires that the person making assurances
has benefits to promisor, in this case H sold the car.

Parole Evidence Rule - concerned only with WHOLLY WRITTEN contracts; contains to parts
(i) exclusion of extrinsic evidence that would add to, subtract from or vary terms of a written
contract (ii) the exclusion of extrinsic evidence that would otherwise have assisted the court
in interpreting or construing the contract
General – rule states that extrinsic evidence cannot be introduced that will have
effect of adding to, subtracting from, varying, or contradicting the language of an
entirely written contract (Codelfa Construction v State Rail Authority) ie express
terms are only those recorded in the contract!!!
- relates to all forms of extrinsic evidence (most commonly oral evidence); excludes oral
evidence aimed at substantiating claims to prevent enforcement of contract according to its
terms founded on alleged estoppel arising during the course of antecedent negotiations
(Franklins PLtd v Metcash Trading Ltd)
- Ie if a party is trying to enforce terms of a contract using estoppel, the other party can rely
on PER which excludes any extrinsic oral evidence that will attempt to give force to the
agreement, so that the agreement will not be enforced. (ie there are two parties, one of
them wants to enforce the agreement, and if the other one doesn’t want to, then the 1st
party may raise a claim in estoppel;
- what the PER does is then prevent any extrinsic evidence from supporting the claim of
estoppel and preventing the contract from being enforced based on terms not stated in the
agreement); if elements of estoppel are established, then the claim should succeed;
however, if estoppel is not established s 52 of TPA may provide relief for the party unable to
establish a collateral contract
- The parol evidence rule states that extrinsic evidence will not be admissible to explain the
meaning of written terms. Chartbrook Ltd v Persimmon Homes Ltd

S 52 TPA: Misleading or deceptive conduct

(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by
implication the generality of subsection (1).

Justification for PER:

1. finality in written instruments by not allowing alteration/ qualification by uncertain
testimony of slippery memory;to maintain intention of parties (Codelfa Constructions
PLtd v SRA of NSW)
2. provides certainty (Hope v RCa Photophone of Australia PLtd)
3. reduces litigation time and costs (B & B Constructions PLtd v Cheeseman and Assoc)
Thorne v Borthwick (1955) 56 SR(NSW) 81 –

One view: If a written agreement contains prima facie a complete contract providing for all
matters relevant to the tranaction, the court will NOT allow evidence to be given for
purposes of establishing that an additional term has been omitted; ie if it looks on the face
of it that all the essential terms are stated in the contract, the court wont allow extrinsic
evidence of prior conversations/ negotiations to establish that there is a missing term.
Second view: to establish intention of parties whether written document contains all the
terms that were supposed to be included, the writing MUST be compared with negotiations
received in evidence before it can be safely said that all the essential terms are contained
and what both parties have agreed to be bound to; in this case oral evidence is admissible
to determine if the parties intended for the agreement to be wholly in writing (if all essential
terms are established after looking @ extrinsic evidence, then this is so), or whether the
contract was meant to be part writing and part oral.

F: P argued that despite written contract, the sale of neatsfoot oil was to be by ‘sample’,
which wasn’t stated in written contract; 1st and 2nd views applied; 2nd view was to look @
extrinsic evidence to show not intended to be entire contract simply in what was written, but
partly written, partly oral; ‘sample’ term may have amounted to collateral contract.

*State Rail Authority NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 – with
reference to the 2 views stated in Thorne v Borthwick, judges have subsequently preferred
the 2nd view; ‘there mere production of a contractual document, however complete it may
look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that
such terms were agreed’; if this is the case (part written, part oral) then no PER applies.
- The PER only applies when it is FIRST determined by looking @ extrinsic evidence to
establish that terms of the agreement are wholly contained in writing.

Hope v RCA Photophone (1937) 59 CLR 348 - a written contract that contains an
‘entire agreement clause’ will generally mean that it is an entirely written contract to
which PER will apply;
1) however such a clause does not, unless expressly stated, operate to exclude use of
extrinsic evidence to establish implied term.

Eg: Hart v McDonald – a clause which said ‘there is no agreement or understanding between
the parties not embodied in this tender’ did not preclude the implication of an implied term
into the contract

2) nor does an entire agreement clause exclude introduction of evidence that would
establish a claim or damages in tort of deceit – Commercial Banking Co of Sydney Ltd v RH
Brown & Co

Exceptions to the Rule - PER is NOT absolute!!! Use of extrinsic evidence may be
to:
1. establish that operation of contract is not to occur until happening of certain event (ie
subject to a condition precedent)– Pynn v Campbell
2. establish the existence of implied term – Hart v McDonald
3. establish that written contract incorrectly records the agreements of parties ie error
made when agreement recorded in writing – Ryledar PLtd v Euphoric PLtd
4. establish existence of prior collateral contract provided no ‘entire agreement clause’
contained in main contract – Thorne v Borthwick

Collateral contract – as a separate contract, a collateral contract is not strictly speaking,

an exception to the PER; the PER only applies to main contract. (SEE ABOVE NOTES!!!)

Estoppel – may be an exception to PER where DO-Estoppel applies – oral promise

supplementing a written contract. - Whittet v State Bank of New South Wales (1991)
24 NSWLR 146

Written terms and the effect of signature

*Toll (FGCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165; F: concerned
signature to printed form w/ printing on front and back; front stated above where it was
signed “Please read conditions of contract prior to signing”; signatory didn’t read relevant
conditions, nor were they mentioned in any conversation b/w the relevant parties; conditions
contained exclusion clause seeking to exclude party relying on clause from some or any
liability when D has committed a breach of his/ her contractual and or other obligations;
issue was whether exclusion clause was part of contract; HC H: to sign a document gives
representation that person who signs either read and approved of contents or is willing to
take a chance to be bound by those contents, especially where signature is right below a
written request to read all conditions prior to signing!!!

L’Estrange v Gaucob [1934] 2 KB 394 – if there is a claim of misrepresentation, or issue

to whether document meant to affect legal relations, or whether tendered as memo of pre-
existing contract, or a receipt, or if there is claim for equitable or statutory relief, it may be
material to know if a person was given sufficient notice of contents of agreement prior to
signing
- general rule: where there is no suggested 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 document wasn’t read.

*Curtis v Chemical Cleaning and Dying Co [1951] 1 KB 805 – EXCEPTION TO

SIGNATURE RULE  signature rule doesn’t apply in situations where documents are signed
as a result of fraud/ misrepresentation/ duress/ undue influence/ unconscionable conduct/ or
non est factum (species of mistake).
F: document headed ‘receipt’ required C’s signature; C asked why the signature; CCDC
responded to exclude liability for damage to beads/ sequins; however truth was to exclude
liability for all damage to dress; dress was damaged, C sued; CCDC argued no liability b/c of
exclusion clause; H: referred to L’Esrange case stating that failure to draw attention to
existence or EXTENT of exemption clause may convey no exemption at all; false impression
could result from words/ conduct of D; contract unenforceable!
*If C had not asked and just signed, the same result would have occurred b/c the document
was title ‘RECEIPT’ and no attention was brought to C about any exemption clause*

Incorporation by Notice (UNSIGNED DOCUMENTS) – generally deals w/ tickets, tickets

upon entry, entry to premises/ use of facilities; the person to be bound by terms must have
been given REASONABLE NOTICE of terms usually at the time or BEFORE entry into
contract!! (Olley v Marlborough Court; Oceanic Sun Line v Fay)
- Question is: is the transaction where a reasonable person would expect to find
contractual tersm??
- Yes? Party is bound, deemed to have been given reasonable notice – Parker v SE
Railway Co
- NO? Party not bound – unless sufficient steps take to give notice – Causer v Browne;
Thorton v SL Parking
- Where unusual / onerous terms incorporate, special notice MUST be given – Interfoto
Picture Library PLtd v Stiletto Visual Programmes Ltd
-
Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 – F:
exclusion clauses printed on ticket for cruise, however because clause not incorporated on
contract which was signed beforehand, it wasn’t binding as not part of the original contract.

*Parker v South Eastern Railway Co (1877) 2 CPD 416 – what is reasonable notice
will depend on the type of sign or ticket (whether contractual or non-contractual
in nature); regarding bill of lading; if documents are of contractual nature, the presentation
and acceptance of document will amount to reasonable notice. If shipowner gives bill of
landing to goods owner, goods owner plainly bound to it even though didn’t read it because
shipowner is entitled to assume person shipping goods has knowledge that bill of lading
contains contractual terms. Whoever doesn’t bother to read has to suffer consequences of
ignorance b/c it would be impossible for a shipowner to have to explain a bill of lading to
every customer (no business efficacy)

*Thornton v Shoe Lane Parking [1971] 2 QB 163 – regarding time of notice of terms;
must occur BEFORE contract complete; F: ticket @ parking station issued stating contract
was on terms and conditions set out on pillar opposite ticket machine (these were only in
relation to exclusion of liability from damage to vehicle). Terms included clause excluding
parking station from liability of damage to vehicle and personal injuries to owner of vehicle.
H: reasonable notice NOT GIVEN b/c contract completed once ticket machine offered to take
$ and T accepted by inserting $. So, only terms viewable near the machine were valid,
however if any additional/ different terms were on ticket, they did not apply b/c ticket came
too late – after contract already made.

Causer v Browne [1952] VLR 1 - non-contractual in nature; party relying on the clause
must take reasonable steps to draw the recipient’s attention to this (tickets, receipts,
vouchers); F: C brought dress to B t dry clean, B handed docket; dress damaged, and B
claimed protection by exclusion clause on docket; H: B must show that person receiving was
aware that the docket was not merely a voucher/ receipt but that it contained contractual
terms; b/c no steps taken to draw C’s attn to exclusion clause, it was not part of contract.

Incorporation by course of dealings – if there is no document signed, the D wishes to

rely on an exemption clause in contracts signed during previous course of dealings where
parties have regularly contracted in the past on same terms; whether the previous record of
contracts leads to incorporation of those terms into later contracts is a question of
reasonableness – Henry Kendall & Sons v William Lillico & Sons
- In Hollier v Rambler Motors 3-4 contracts over 5 years is not sufficient to establish
consistent course of dealings; whereas in Henry Kendall v William Lillico, 3-4 cntracts per
month over 3 years is sufficient.
Where parties have previously dealt with each other on a regular basis so there is a
course of dealing – terms may be incorporated into the contract (or displaced) – even
where the documents are given during or at the end of performance of the contract
Eggleston v Marley Engineering

Balmain New Ferry Co Ltd v Robertson (1904) 4 CLR 379 - The party seeking to rely
upon the exclusion clause must show that he or she did all that was reasonable, in the
circumstances of the case, to bring the term to the attention of the other party

*DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 – in same
circumstances as Henry Kendall v William Lillico, court held that terms in delivery docket
handed over after each previous contract had been entered into was not incorporated into
the latest contract even if Ptf knew of the existence, but not of the content of the
documents; if P knew that document was a contractual document, he would have been
bound by it
- despite a course of dealings, the document was a delivery document and as such the party
could not have expected that it was contractual in nature. They were therefore not expected
to know of the terms and conditions.
.

Construing the Terms

- Terms in a contract will have the meaning that the parties intended them to have.
 - Where the parties dispute the meaning, the court will decide what the meaning is –
by ascertaining the meaning intended by the parties. Pioneer Shipping Ltd v BTP
Tioxide Ltd (The Nema) [1982] AC 724
- The court will ascertain the intended meaning objectively, by considering the words
used and the surrounding circumstances. The parties’ subjective intention is not
considered. Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989
- Surrounding circumstances include the whole contract, the background (factual
matrix) and the purpose for which it was made.
- Where there are two possible interpretations, the court will avoid constructions that
lead to ‘capricious, unreasonable, inconvenient or unjust’ consequences.
*Australian Broadcasting Commission v Australasian Performing Right
Assoc (1973); Westpac Banking Corporation v Tanzone Pty Ltd & Ors

Extrinsic Evidence in construing the contract

White v ANZ Theatres (1943) 67 CLR 266 - extrinsic evidence may be used to ID
parties or subject matter (exception to PER)

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
- The circumstances surrounding a contract or the ‘setting’ of the contract can be
examined by reference to extrinsic evidence to assist in construing a contract – this is
known as the “factual matrix”. It is used to ascertain objectively what the parties intended;
- ‘evidence of surrounding circumstances is admissible to assist in the interpretation of
the contract if the language is ambiguous or susceptible of more than one meaning.. the
prior negotiations will tend to establish objective background facts which were known to
both parties and the subject matter of the contract. To the extent to which they have this
tendency they are admissible

Evidence excluded under PER in construing contract:

- Evidence of the parties’ subjective intentions.
- Evidence of the parties prior negotiations – except where relevant to the factual matrix
Codelfa Construction Pty Ltd v SRA of NSW
- Evidence of the parties subsequent conduct White v Australian and New Zealand Theatres
Ltd
- Evidence found in oral statements, correspondence, notes,or other documents etc…

Exceptions to PER in construing contract:

Ambiguity
- Extrinsic evidence is allowed where the language used is ambiguous – ie is capable of more
than one meaning, the meaning is unclear or inconsistent.
- For the exception to apply there must be a genuine uncertainty in the meaning of the
words.
Hope v RCA Photophone of Aust Pty Ltd
- To identify the parties or subject matter. White v ANZ Theatres Ltd
- Evidence of trade usage - May be admitted where the trade meaning is ‘well-known,
uniform and certain’.
Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186
ALR 289

IMPLIED TERMS:
• Terms implied by statute: the Sale of Goods Act 1979. The key provisions are:
o Section 12: the person selling the goods has to have the legal right to sell
them.
 o Section 13: if you’re selling goods by description, e.g. from a catalogue or
newspaper advert, then the actual goods have to correspond to that
description.
o Section 14: the goods must be of “satisfactory quality” – that is, they should
meet the standard that a reasonable person would regard as “satisfactory”.
Also, if the buyer says they’re buying the goods for a particular purpose,
there’s an implied term that the goods are fit for that purpose.
o Section 15: if you’re selling the goods by sample – you show the customer one
bag of flour and they order 50 bags – then the bulk order has to be of the
same quality as the sample.
• Terms implied by the courts…
o As a matter of fact. Something that’s so obviously included that it didn’t need
to be mentioned in the contract. If I agree to pay you £50 for a lawnmower, it
probably wouldn’t occur to us to write down that we mean fifty pounds
sterling, as opposed to any other sort of pound. That’s obvious to both of us.
(Beware of this point – it has to have been obvious to both parties – it’s not
enough to show that one party thought it was included, or that the contract
would have been more reasonable with the added term.)
o As a matter of law. This is about general considerations of public policy – the
courts are laying down, as a matter of law, how the parties to certain types of
contract ought to behave. For example, in one case, the courts held that
landlords of blocks of flats ought to keep the communal areas (lifts, stairs etc)
in a reasonable state of repair – so that term was implied into the rental
contract.
o Customary terms. Some terms are generally known to be included in
contracts in a particular trade or locality. Amongst bakers, “one dozen” means
thirteen – they don’t have to include terms in every contract specifying that.
Do note that any of these terms implied by the courts can be excluded with an express
term. If a bakers contract has a clear term in it that says “one dozen means twelve for the
purposes of this contract”, then the courts can’t say that a dozen has to equal thirteen!

(i) Trade Practices Act 1974 (C’th) -Statute that implies terms in sale of goods contracts

* Implied condition that goods will be of merchantable quality: s71 (1);

* Implied condition that goods are reasonably fit for the purpose for which they were
supplied: s71 (2);
* Implied condition that if goods are sold by example, the bulk will correspond with that
sample: s72
* It is important to note that parties cannot contract out of these terms implied under the
TPA – s68

Terms Implied by Fact

BP Refinery Ltd v Shire of Hastings (1977) 180 CLR 266 – TEST APPLIES ONLY TO
FORMAL CONTRACTS!!!!
To imply a term in fact, the following conditions must be met-

1. It must be reasonable and equitable.

o A term which is not reasonable or equitable could not give effect to the
presumed intentions of the parties.
o A term that would cause one party a significant detriment would not be
reasonable or equitable.
2. It must be necessary to give business efficacy to the contract so that no
term will be implied if the contract is effective without it.
 o If the contract is unworkable, in a business sense, without the term,
the term will be implied into the contract. “The Moorcock” (1889) 14 PD 64; Re
Ronim Pty Ltd [1999] 2 Qd R 172; Attorney General of Belize v Belize Telecom Ltd
3. It must be so obvious that it “goes without saying”.
o ‘Prima facie that which in any contract is left to be implied and
need not be expressed is something so obvious that it goes without saying, so that if,
while the parties were making their bargain, an officious bystander were to suggest
some express provision for it in their agreement, they would testily suppress him
with a common “Oh, of course!”.’ Mackinnon LJ in Shirlaw v Southern Foundaries
[1939] 2 KB 206
4. It must be capable of clear expression.
o The term to be implied must be capable of being expressed in a
clear, precise manner.
o In Codelfa, one of the reasons the term was not able to be implied
was because it was not possible to state clearly what the term should be.
o Brennan J also found the term to be inconsistent with the
requirements in the contract regarding payment and time for completion. (p 406)
5. It must not contradict any express term of the contract.

*Byrne v Australian Airlines Ltd (1995) 131 ALR 422 – TEST IMPLIES TO INFORMAL
CONTRACTS:
• Necessity: The term must be necessary to ensure reasonable or effective operation
of a contract of the nature before the court.
• Consistency: The implied term may not contradict an express term (same as for
formal contracts).
• Clear expression: The term must be capable of clear expression (same as for
formal contracts).
• Obvious: McHugh and Gummow JJ have stated that it must also be obvious.
*Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127
The Moorcock (1889) 14 PD 64
*Codelfa Construction v State Rail (1982) 149 CLR 337
Sanders v Snell (1998) 196 CLR 329

Terms Implied in Law

o In these situations a term is implied into all contracts of a particular class. This is
because the law’s view is that, on policy grounds, such terms should be implied
o So for example:
- conditions of reasonable fitness re sale of goods
- contracts for the provision of professional services
- tenancy and building contracts – house fit for habitation.
o To determine whether a term should be implied at law the courts use the test of
necessity. - Liverpool City Council v Irwin [1977] AC 239

o TEST OF NECESSITY
o Must be able to ascertain that the contract belongs to a particular class of contracts
AND that the term is applicable (and necessary) to all contracts of that class.
 ‘The requirement of necessity reflects the concern of the courts that, unless such a
term be implied, the enjoyment of the rights conferred by the contract would or
could be rendered nugatory, worthless, or perhaps, be seriously undermined.’ per
McHugh and Gummow JJ
Byrne v Australian Airlines Ltd at 450
 See also University of Western Australia v Gray
  The implied term must be consistent with the express terms of the contract.

Renard Construction v Minister for Public Works (1992) 26 NSWLR 234

*Byrne v Australian Airlines Ltd (1995) 131 ALR 422
*University of Western Australia v Gray (2009) 259 ALR 224

Terms Implied By Statute

Sales of Goods Act 1896 (Qld)
 the goods are fit for purpose;
 the goods are of merchantable quality
 the bulk corresponds with the sample
 the seller has title to the goods being sold

Trade Practices Act 1974 (Cth) - has similar provisions to SGA but includes provisions
for ‘supply of goods’

Sale of Goods Act 1896 (Qld)

• Implied condition that the seler has title to the goods bing sold, or will have title at
the time property in the goods is to pass: s15(a)
• Implied warranty that the buyer will have quiet possession of the goods: s15(b)
• Implied warranty that the goods are free from any charge or encumbrance: s15(c)
• In a contract for the sale of goods by description, an implied condition that the goods
correspond with the description (and if the sale is by sample, as well as by
description, it is not sufficient that the bulk of the goods corresponds with the sample
if the goods do not also correspond with the description): s16
• Where they buyer, expressly or by implication, makes known to the seller that
particular purpose for which the goods are required, so as to show that the buyer
relies on the sellers skill or judgment, and the goods are of a description that it is in
the course of the seller’s business to supply, an implied condition that the goods are
reasonably fit for the purpose: s17(a)
• When goods are bought by description from a seller who deals in goods of that
description, an implied condition that the goods are of merchantable quality: s17 (c)
• In a contract for sale by sample, implied condition that the bulk corresponds with the
sample in quality, that the buyer will have a reasonable opportunity of comparing the
bulk with the sample, and that the goods are free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable examination of the
sample: s18

Clear words are required to exclude implied terms (Wallis v Pratt and Haynes).

Trade Practices Act 1974 (Cth)

The Trade Practices Act will only operate where the supplier is a corporation and the
acquirer is a consumer within the statutory definition (ss4 and 4b) or if the transaction falls
within one of the categories of extended application of the legislation for example, if the
tranaction occurred as part of the supplier engaging in trade or commerce internationally,
interstate or between a state and territory (s6(2)(c)).

Terms implied by the Trade Practices Act are not limited to contract for the sale of goods but
also extend to their supply. Supply is defined to include sale, exchange, lease, hire or hire
purchase (s4).

The Trade Practices Act implies in a contract for supply of service, a warranty that the
service will be rendered with due care and skill and that any materials supplied will be
reasonably fit for the purpose for which they are supplied. A further warranty will be implied
that the services and materials supplied in connection with them will be reasonably fit for
the purpose for which those services are required – or of such a nature and quality that they
might reasonably be expected to achieve the result (s74(2)).

A term may be implied as a matter of law in contracts of a particular class

(Liverpool City Council v Irwin).
Some examples are:
• Contract for the provision of goods and services: goods or services will be reasonably
fit for the purpose supplied or rendered (Samuels v Davis).
• Contracts for the provision of professional services: reasonable care will be taken by
professional in provided services (Greaves Y Co v Baynham).
• Contracts of employment: duty to proved a safe work place (McLean v Tedman).
• Building contracts: the completed house will be fit for habitation and the work done
will be carried out in a proper and workman like fashion (Perry v Haron
Developments).

Terms Implied by Custom or Usage

 Term to be implied by custom must be ‘notorious, uniform, reasonable and certain.’
Con-Stan Industries v Norwich Winterthur Insurance (1986) 160 CLR 226
 Requirements are strictly applied.
 Will not be implied if the alleged implied term is inconsistent with the express terms
of the contract.
Onus of proof
 On the party seeking to argue for the implied term.

*Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust)

Ltd (1986) 160 CLR 226

Implied Duty of Good Faith

 Duty to cooperate –
‘It is a general rule applicable to every contract that each party agrees, by
implication, to do all such things as are necessary on his [or her] part to enable the other
party to have the benefit of the contract.’
Per Griffiths CJ , Butt v McDonald (1896) 7 QLJ 68
 Such a duty has been held to extend to a general duty in all contracts to act in good
faith. Support for an implied term to act in good faith in ..
Renard Constructions v Minister for Public Works (1992) 26 NSWLR 234
Burger King v Hungry Jacks [2001] NSWCA 187
 Currently the notion of an implied duty of good faith in all commercial contracts does
not have full judicial support.
 See Kirby J in Royal Botanic Gardens v South Sydney Council (2002) 186 ALR
289 at 312:
‘[In] Australia, such an implied term appears to conflict with fundamental notions of
caveat emptor that are inherent (statute and equitable intervention apart) in common law
conceptions of economic freedom. It also appears to be inconsistent with the law as it has
developed in this country in respect of the introduction of implied terms into written
contracts which the parties have omitted to include’.

*Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWSC 197

5 Rules of Construction Developed by the Courts

EXCLUSION CLAUSES:
1 - Contra Proferentum Rule: (Explained above - (ii))
2 - Fundamental Breach Rule:
An EC can prevent liability for a fundamental breach of contract where the clause is clear
and unambiguous and where the court in viewing the circumstances of the particular case
determine that the intention of the parties was to agree to an EC covering the particular
breach alleged.

Suisse Atlantic Societe v NV Rotterdam [1967] - Upjohn J stated that a fundamental breach
‘goes to the root’ of an agreement’. Therefore there couldn’t be an EC to cover a
fundamental breach. (Overruled see below)
Photo Production Ltd v Securicor Transport - House of Lords rejected the doctrine of
fundamental breach adopted in Suisse (above), which suggested that termination for
fundamental breach necessarily prevents the enforcement of an exclusion clause.

Court held that the question of reliance on an exclusion clause and the fundamental breach
is ‘one of construction that there is no principle of law that a fundamental breach will
automatically invalidate an EC.’

Court was not entitled to reject EC ‘however unreasonable the court itself may think it is, if
the words are clear and fairly susceptible of one meaning only.
* Defendant contracted to supply plaintiff with security patrol for their factory. Security
guard destroyed the plaintiff’s factory through a fire.
* Defendant relied on EC in the contract that stated ‘under no circumstance shall
(Securicor) be responsible for any injurious act or default by any employee of Securicor…’
* Although Securicor was found to have breached an implied term requiring to provide the
service with due and proper regard to the safety and security of Photo’s premises, their
primary obligation is modified by the Exclusion Clause – where Securicor’s obligation isn’t
absolute, its limited to exercising due diligence in its capacity as an EMPLOYER of the
staff/security.
* Because the clause was clear and unambiguous, the defendant could rely on it given the
facts

Bellart v African Lion Safari Park – in Qld, it was held that an exclusion clause on a ticket
to an entertainment park and a large sign @ the entrance to the park absolved the
defendant from liability for personal injury; there was evidence that the P was aware of, but
did not read, the condition printed on the ticket!!!

3 - Deviation Cases
If you deviate from the contract, you lose the effect of the EC

TNT v May and Baker - Carrier deviates from the agreed voyage or route, therefore loses the
benefit of an EC.
* A TNT subcontractor was to transport May and baker’s goods from Mel to Sydney. When
subcontractor collected good, was unable to store them in TNT storage depot as they were
closed for the night.
* Subcontractor went and stored them in his home garage, fire went loose and destroyed
goods.
* TNT tried to rely on their exclusion clause to protect them, however HC ruled against
them on the basis that the contract stipulated that the goods be stored in TNT depot.
* Storage in subcontractors home was an unauthorized deviation which rendered the EC
inapplicable.

4 - The Four Corners Rule

If the defendant’s act that causes loss to the plaintiff is an act that hasn’t been authorized or
contemplated by the contract then an EC cannot protect the defendant from liability of
damages flowing from the act, as seen in Council of the City Sydney v West.

Such an act is said to be outside the scope, or four corners, of the contract.

5 - Exclusion Clauses and Negligence

For negligence by a contract breaker to be within the scope of an EC it is clear that it must
be clearly intended that the clause covers negligence: Davis v Pearce Parking Station

3 rules that apply to Exclusion Clauses and how they are construed in the event that the
plaintiff’s loss is due to negligence of the defendant, have been summarized in Canada
Steamship Lines Ltd v The King:

i) An express exemption of liability for negligence will effectively exclude liability on the part
of the defendant;

If the EC explicitly excludes liability for negligence it ill be effective…words such as

‘howsoever caused’ and ‘under no circumstances’ will generally be said to incorporate
negligence: Rutter v Palmer

ii) Where there is no express reference to negligence, the court needs to determine if the
words used are wide enough to exclude negligence, with any doubts on this to be resolved
by applying the contra proferentum principle.

If the only way in which the defendant could be liable for breach of contract is by acting
negligently then a clause that makes no mention of negligence will usually be sufficient to
exclude liability for the defendant Alderslade v Hendon Laundry Ltd

iii) If the words used are wide enough to cover negligence but also encompass other grounds
of liability other than negligence, the clause will be read as applying only to the ground of
liability and will not operate to exclude the claim for negligence.