Cases- Terms of a Contract

St. Alban's City & District Council v. International Computers Ltd. [1996] 4 All ER 481

Facts Defendant sold a computer system to the claimants- the system was defective with the result that the claimants suffered loss. The claimant sued the defendants for breach of contract. The defendants sought to rely on a clause of the contract that limited liability for breach of contract. The claimants argued that the limitation clause should be rendered ineffective under s3(1) UCTA. Held Although the claimants and the defendants had the opportunity to negotiate over the contract, the defendants standard conditions remained untouched throughout the negotiations, and thus the claimants did 'deal on the defendant's written standard terms of business'. As such, the defendants could not exclude or restrict liability for breach of contract except in so far as the relevant term satisfied the requirement of reasonableness. In this case the term did not satisfy that requirement and hence the defendants would be liable in full.

Rainy Sky SA v Kookmin Bank [2011] UKSC 50

Key points The Supreme Court held that, where language was open to two possible constructions, the courts were entitled to prefer the construction which accorded with commercial common sense. As McKendrick argues, the principle should be applied carefully- it should not be used to enable parties to escape from a bad bargain

The Moorcock (1889) 14 PD 64

Facts Defendants agreed to allow the claimants to use the defendant's jetty to get a ship into the River Thames. The claimants, in doing so, damaged the bottom of their ship as the jetty was insufficiently deep. The claimants sued on the basis that this was in breach of an implied term of the contract. Held A term would be implied on the basis that it was necessary to give business efficacy to the transaction. Thus, in this case, a term would be implied such that the defendants would take reasonable care to see that the bottom of the river is reasonably fit for the purpose for which the jetty is to be used. This term had been breached and the defendants had a right to damages.

Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1989] QB 433

Facts Defendants borrowed some photographic transparencies from the claimants. The transparencies came with a delivery note containing printed conditions. One of the conditions was a fine for late returns of £5 a day per transparency. The defendants returned a number of transparencies late- the claimants sued on the basis of the condition for a fine totalling nearly £4000. Held The more unusual or onerous a clause, the more that the party seeking to enforce it will have to do to show that it had been fairly and reasonably brought to the attention of the other party. Given the particularly onerous nature of the clause, not enough had been done in this case. Key points Note Bingham LJ's discussion of good faith- in civil law jurisdictions the case may be treated on this basis.

Liverpool City Council v. Irwin [1977] AC 239

Facts The claimant (Irwin) was a tenant in accommodation provided by the defendants. The claimant claimed that the defendants were in breach of implied duties under the tenancy contract for failing to maintain the common parts of the building, including lifts, staircases, rubbish chutes, and passages. Held The tenancy agreement included an implied easement for the tenant to use the stairs, lift, rubbish chutes etc, and correspondingly the defendants had an implied obligation to make sure that these means of access were maintained. However, these terms would only be implied to the extent that was absolutely necessary, and not simply on the basis of reasonableness. Thus, the terms that were implied were so narrow that on the facts none of them could be said to have been breached. Key points Note the different tests for implication of terms in law- Lord Wilberforce requires to 'necessity' whereas Lord Cross refers to 'reasonableness'. Importantly, however, the necessity or reasonableness is by reference to the nature of the contractual relationship between the parties (Not the requirements of business efficacy, as in terms implied in fact).

Olley v. Marlborough Court Ltd. [1949] 1 KB 532

Facts The claimant and his wife entered into the defendants hotel and paid for a week's board at the reception desk. They then went up to their bedroom where there was a notice excluding liability for lost and stolen objects. An object was lost and the claimants sued; the defendants sought to rely on the exclusion of liability. Held The exclusion of liability was not incorporated into the contract as it was only viewed after the contract had been concluded. Hence, the defendants could not rely on the exclusion of liability.

Hong Kong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd. [1962] 2 QB 26

Facts The claimant charterers contracted to charter a ship from the defendant shipowners. It was a term of the contract that the defendants should maintain the ship in a seaworthy state prior to delivery. The defendants, in breach of this term, failed to fix a problem with the hull of the ship, which meant it was unseaworthy on delivery. However, the problem was relatively easy to fix. Nevertheless, the claimant sought to terminate the contract. Held The term as to seaworthiness was neither a condition nor a warranty, but rather an innominate term. Breach of such a term would only give the innocent party a right to repudiate the contract if its effect was to deprive the party who still had undertakings to perform of substantially the whole benefit that he was to obtain under the contract. In this case, the breach could not be said to be of that magnitude since it was relatively easily fixed, and the claimants therefore had no right to terminate the contract.

The Mihalis Angelos [1971] 1 QB 164

Facts The claimant charterers contracted to charter a ship from the defendant shipowners. It was a term of the contract that the ship would be 'expected to be ready to load' on a specific date. When it became apparent that the ship would not be ready to load on that date, the claimants sought to terminate the contract (anticipatory repudiation) and recover damages for the cost of obtaining alternative performance. The defendants protested that the term was merely a warranty or innominate term and that therefore there was no right to terminate the contract. Held The term of the contract which stated that the ship must be 'expected to be ready to load' at a particular date, bearing in mind the importance of timing in shipping contracts, as well as commercial certainty, would be classified as a condition. As such, the claimants did have a right to terminate the contract, which could be exercised by way of anticipatory repudiation. Key points An important point here is that in a commercial situation a party will often need to know in advance whether they have a right to terminate the contract, so that they can perform a repudiatory breach and get performance elsewhere. It is these factors which may lead to the courts being more willing to classify terms as conditions or warranties in the commercial context, in order to facilitate certainty in the law.

Parker v. South Eastern Railway (1877) 2 CPD 416

Facts The claimant deposited an item in a cloakroom run by the defendants. He received a ticket, on which a limitation of liability was written. A limitation of liability was also hung up in the cloakroom. Held On the facts, the defendants had taken reasonable steps to bring the limitation of liability to the claimant's attention and therefore it was incorporated into the contract. Key points Notice that in this case Mellish LJ focusses on whether or not the claimant actually did notice the conditions or not- this is problematic because it means that a person who is particularly careful will be punished for this fact. The later cases, such as Interfoto, show that this is not the core issue- the focus is on the person seeking to rely on the terms and whether they took sufficient steps to bring it to the attention of the other party.

Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163

Facts The claimant drove a car into an automatic car park. Upon driving in, he inserted money into an automatic machine and received a ticket. The ticket stated that it had been issued subject to conditions displayed on the premises; within the car park there was a notice which included conditions excluding liability. Held The contract was concluded at the moment the money was placed in the machine, and the ticket was merely a receipt of a previously concluded contract. Further, given the exceptionally onerous nature of the exclusion clause in this case, reasonable steps had not been taken to bring it to the notice of the claimant. For both of these reasons, the clause had not been incorporated into the contract.

Hollier v. Rambler Motors (AMC) Ltd. [1972] 2 QB 71

Facts The claimant had his car repaired at the defendant's garage on three or four occasions. On at least two of those occasions he had signed a form which included an exclusion of liability. On this occasion there was no such form; the defendants sought to argue that the form had been incorporated by a consistent course of dealing. Held In order for a term to be incorporated by a course of dealing, the course of dealing had to be sufficiently regular. In this case, there had not been sufficient prior meetings to establish a clear course of dealing.

L'Estrange v. F. Graucob Ltd. [1934] 2 KB 394

Facts The claimant purchased a slot machine from the defendants. The contract of sale was contained in a written document. One of the terms excluded all liability for breaches of contract. The claimant did not read the document, and signed it. Held The buyer had, by signing the document, caused the terms to be incorporated into the contract. It was immaterial that she had not read the document and did not know its content. Key points There are exceptions to this principle on the basis of non est factum or misrepresentation. But should there be a broader exception to apply where the party seeking to rely on the document knows that the other party has not read the document? On the one hand, this would seem to be fairer and reflect the general understanding of apparent authority. On the other hand, it would undermine legal certainty and would prejudice third parties who might rely on a signature. NB: Maugham LJ was reluctant about the result. But is this necessarily bad? The problem here seems to be one of unfair terms (this would be excluded now under the CRA) and not one of incorporation.

Chapleton v. Barry UDC [1940] 1 KB 532

Facts The claimant purchased deck chairs from a beach stall run by the defendants. Having paid for the chairs, he received a ticket. On the back of the ticket was an exemption of liability. Held The ticket was a mere receipt and the conditions contained in it were not incorporated into the contract.

McCutcheon v. David MacBrayne Ltd. [1964] 1 WLR 125

Facts The claimant regularly bought motor cars from the defendants. Normally, the defendants would give the claimant a 'risk note' to sign, which included exemptions of liability. The claimant generally signed the note but not always. In this case, no risk note was given or signed. The defendant sought to argue that the exemption of liability was nevertheless incorporated by a course of dealing. Held In order for a term to be incorporated by a course of dealing, the course of dealing must be regular and consistent. In this case, the risk note had not been given and signed on a consistent basis, and it could not be said that the exclusion clause had been incorporated. Key points Lord Reid suggested that the position could have been different if the claimant had noticed the error and attempted to take advantage of it in bad faith.

Scally v. Southern Health and Social Services Board [1991] 4 All ER 563

Facts The claimant was an employee of the defendants. A term of the employment contract provided that the employee was to have full pension benefits, as long as they were applied for within 12 months. The claimant was not aware that he had to make an application and so failed to do so within the period. He claimed on the basis that it was an implied term of the contract that he should be notified of the policy. Held An implied term to notify could not be said to be necessary to give business efficacy to the transaction and so would not be implied in fact. However, such a term would be implied in law in particular circumstances as being a necessary incident of the contractual relationship. Key points This case is best seen as a case of implication of terms in law, albeit one where the category in which the term would be implied was so narrow that it became very close to implication in fact.

Mir Steel UK Limited v Christopher Morris and ors [2012] EWCA Civ 1397

Facts The claimants and defendants entered into a contract whereby the defendants accepted liability for 'any claims' made against the claimants by a third party, L. L made claims in conspiracy, breach of contract, and conversion. Held The Canada Steamship test was merely a guideline and the court's function was to interpret each particular contract in the context it was made. In this case, the commercial context meant that there was no justification for construing the clause narrowly. As such, it would apply to all actions brought by L.

Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44 Facts

Facts The claimants and the defendants entered into a contract following 'without prejudice' negotiations. During the course of negotiations, the parties exchanged objective facts. Held A contract was to be interpreted with regards to all relevant circumstances- the full 'matrix of fact'. This factual matrix would include facts that were disclosed in the course of 'without prejudice negotiations.

Bunge Corporation v. Tradax SA [1981] 1 WLR 711

Facts The claimants contracted to buy soya beans from the defendants. It was a term of the contract that the claimants would nominate a port to which the beans could be delivered. However, the claimants failed to nominate a port by the given date, and only did so 4 days later. As a result, the defendants terminated the contract. The claimants sued the defendants for wrongful cancellation of the contract. Held In mercantile contracts, time is of the essence, especially given that a party who is a buyer on one day may well be a seller on the next day. As such, where one party's obligation in such a contract is a condition precedent to the other party's obligation, the term as to the time for performance of the former obligation would in general fall to be treated as a condition. As such, the failure to nominate a port on time gave the defendants a right to terminate the contract. Key points Following on from the Mihalis Angelos, the case signifies a trend, at least in the commercial context, of classifying terms as conditions and warranties rather than simply presuming that they are to be innominate terms. The case also makes clear that classification of a term as a condition is something that is done based on the facts at the time the term was created, not something to be done after the consequences of breach have become apparent.

Phillips Products Ltd. v. Hyland and Hamsted Plant Hire Co. Ltd. [1987] 2 All ER 620

Facts The claimants hired an excavator from the defendants. The contract for hire was made on the defendants standard terms of business. One of the terms of the contract provided that 'the hirer alone shall be responsible for all claims arising in connection with the operation of the plant by the drivers'. The driver of the excavator, who was an employee of the defendants, drove the excavator into a building. The claimants sued in negligence. The defendants sought to rely on the above clause. They argued that the clause should not be assessed for reasonableness under s 2 UCTA because i) it defined the duty of the parties, rather than excluding liability and ii) it related to a transfer of liability, not an exclusion of liability. Held In relation to point i), s13 of the Act makes it clear that s2 is capable of negating the effect of contract terms which purport to exclude or restrict the relevant duty. In relation to point ii), a transfer of liability from A to B was effectively an exclusion of liability so far as A is concerned. Hence, the term was apt to be assessed for the requirement of reasonableness, and on the facts, could not be said to be unreasonable.

Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531 (esp paras 8 - 18)

Facts The claimants were to ship cement for the benefit of the defendants. Under the contract, the defendants were to nominate a berth for the ship. However, the defendants nominated a berth that was unsafe and the ship suffered damages. The claimants sued on the basis that it was an implied term of the contract that the berth would be safe. Held In most cases, it will not be appropriate to imply a term into a contract. Normally, the silence of the parties signifies that they intend a particular loss to lie where it falls. Thus, in this case, failure to include an express provision with regards to the safety of the birth would suggest that the parties intended the claimants to bear that risk. The Court would not disrupt this intention by implying a term to the opposite effect.

Office of Fair Trading v. Abbey National plc [2010] 1 AC 696

Facts The defendant bank imposed very high charges on customers who had overdrawn bank accounts and made late payments. The OFT issued proceedings against the defendants on the basis that these terms were unfair (under what is now s62 CRA). The defendants stated that these charges were part of the price under the contract, and so were excluded from consideration on the grounds of fairness (under what is now s64 CRA). Held The charges for late payments could not be regarded as 'ancillary' to the price and were part of the price. Thus, as long as the charges were expressed in clear and intelligible language (which they were), they would not be subject to assessment on the grounds of fairness.

L Schuler AG V. Wickman Machine Tools Sales Ltd. [1974] AC 235

Facts The defendant entered into a contract by which it undertook to represent and advertise the claimants services to car manufacturers. Clause 7 of the contract stated that 'it shall be a condition of this agreement that [the defendant] shall send its representatives to visit the six largest UK motor manufacturers at least once a week.' The defendant missed a number of appointments; the claimant sought to terminate the contract on the basis that the clause was a condition. Held The use of the word 'condition' would normally be strong evidence that the parties intended to classify a particular term as a condition. However, in this case, on a proper interpretation of the contract the parties could not have intended to use the word 'condition' in the legal sense but must rather have been using it in a looser sense.

ParkingEye Ltd v Beavis [2015] UKSC 67, [2015] 3 W.L.R.1373

Facts The defendant parked in the claimants car park. The claimants offered 2 hours of free parking but after that imposed very high fines for those who stayed longer than the permitted period. The claimant did stay longer than the permitted period, and a fine of £85 was imposed on her. She argued that this was an unfair term. Held The term did cause a significant imbalance in the rights and obligations of the parties to the detriment of the consumer. However, this was not contrary to the requirement of good faith, since the fines were necessary to make the claimants business model, which involved granting free parking, work. A reasonable person in the claimants position would agree to these terms. As such, the term would not be regarded as unfair.

Smith v. Eric S Bush [1990] 1 AC 831

Facts The defendant valuer negligently failed to notice a defect in a property. As a result, the claimant purchased the property and suffered pure economic loss. The defendant sought to rely on a disclaimer of liability contained in the contract, which stated that the defendant would owe no common law duty of care to the claimants. Held Any clause which seeks to exclude or restrict liability for negligence, including a clause which seeks to deny the existence of the common law duty of care, will be assessed in accordance with the criteria of reasonableness under Art 2 and 13 UCTA. On the facts, the disclaimer of liability could not be said to be reasonable, and therefore the defendants were liable.

Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 (esp paras 16 -27)

Facts The defendant was a shareholder in a company owned by the government. Because of the size of his shareholding, he had a right to appoint directors to the company board. Subsequently, he reduced the size of his shareholding. The claimant (representing the government) sought to argue that it was an implied term of the contract that if the shareholding reduced, the directors would also be removed. Held The role of the court in implying terms in fact was the same as the role of the court in interpreting the contract. The court was not permitted to improve upon the instrument as agreed by the parties. However, in this case it was clear that the parties did intend that the directors would be removed if the shareholding decreased, since the purpose of the provision was to ensure that the directors reflected the shareholding. Key points Lord Hoffmann attempted to restate the law on implication of terms in accordance with his theory on interpretation of terms. A fair amount of what he said has proven controversial, and the Supreme Court have rowed back in subsequent cases, particular with regards to equating interpretation with implication and no longer using the old tests for implication of terms.

The Raphael [1982] 2 LLR 42

Facts The defendants contracted with the claimants to perform some work on the claimant's ship. One of the terms of the contract was an exemption of liability for any 'loss, injury, costs or expenses' which arise from 'any act or omission of any person employed by us'. The defendant's employees caused damage to the ship due to negligence. They sought to rely on the exemption clause to protect them. Held A clause that attempts to exclude liability for negligence will be interpreted strictly, according to the 'Canada Steamship' principles. Thus, where an exemption clause did not expressly refer to negligence, it would not be taken to cover negligence unless 1) the words used are wide enough to cover negligence and 2) there is no other head of liability which the party can have reasonably been intending to be seeking protection from. In this case, although there was no express reference to negligence, those two conditions were fulfilled.

Ailsa Craig Fishing Co. Ltd v. Malvern Fishing Co. Ltd [1983] 1 WLR 164

Facts The defendants entered into a contract with the claimants under their standard terms. The contract included a clause limiting liability 'for accidents involving fire, theft, or any other cause of liability. The claimants subsequently brought a claim in negligence; the defendants sought to rely on the limitation clause. Held Although limitation clauses were to be interpreted contra proferentum, they were not subject to the same exacting standards applicable to exclusion and indemnity clauses (ie: no application of the 'Canada Steamship' rules). In this case, the language was broad enough to cover negligence and therefore the limitation of liability would apply to negligence.

British Crane Hire Corporation Ltd. v. Ipswich Plant Hire Ltd. [1975] QB 303

Facts The defendants hired a crane from the claimants. Typically, a contract for the hire of a crane would include a term which stated that, if the crane got stuck in soft ground, it would be the hirer's duty to recover it. This term had been included in two previous dealings between the parties but it was omitted on this occasion. The crane did in fact get stuck in soft ground; the claimants sought to argue that the term imposing a duty on the hirer to recover it was incorporated by a course of dealing. Held Whether or not a term was incorporated by a course of dealing depended on context. Where commercial parties in the same area of trade had knowledge of habitually imposed conditions, this common knowledge could be used to incorporate a term into the contract. As such, the condition was appropriately incorporated into the contract.

Thompson v. T. Lohan Plant Hire Ltd. [1987] 2 All ER 631

Facts The defendants hired out an excavator to a third party. The contract was effectively identical to the contract in Phillips Products, stating that 'the hirer alone shall be responsible for all claims arising in connection with the operation of the plant by the drivers'. The driver of the excavator, who was an employee of the defendants, drove it negligently, killing the claimant's husband. The claimant brought an action in negligence against the defendants. The defendants relied on the above clause. Held In an action brought by a third party, the clause was not operating so as to exclude liability for negligence but rather was operating so as to transfer liability. As such, the clause fell outside UCTA and the defendants were not liable (but the hirers, who were also defendants in the action, were liable).

Photo Productions Ltd. v. Securicor Transport Ltd. [1980] AC 827

Facts The defendants provided a night patrol service for the claimants. A term of the contract stated that the defendants were not liable for loss, 'unless such act or default could have been foreseen and avoided by the due diligence on the party of the defendants' One of the defendant's employees deliberately started a fire, which burnt down the claimants property. The claimants sued and the defendants sought to rely on the exclusion clause. Held The scope of the exclusion clause was to be interpreted in the same way as any other term, by adopting a proper construction of the contract. In this case, the exclusion clause was sufficiently broad so as to cover deliberate wrongdoing as well as negligence, as long as the defendants could not have foreseen and avoided the risk. Thus, in this case, the defendants could rely on the exclusion clause.

Arcos Ltd. v. E A Ronaassen & Son [1933] AC 470

Facts The defendants sold russian timber to the claimants. The contract provided for variation in the length and breadth of the timber, but specifically provided for no variation in the thickness of the timber. In fact, the thickness of the timber varied, and most of it was thicker than what was prescribed in the contract. However, it was still adequate and merchantable. The claimants sought to terminate the contract on the basis of breach of the condition under s13 SoGA (goods not corresponding to description). Held In determining whether a breach gave the innocent party a right to terminate, what mattered was the nature of the term, not the seriousness of the breach. Thus, where (as here) a term was a condition, the fact that the claimant has suffered no substantial disadvantage as a result of the breach was irrelevant; the claimant nevertheless had a right to terminate. Key points The sense that the result in this case was unjust gave rise to the inclusion of s15A in the SoGA, providing that a condition is to be treated as a warranty where the breach is so slight that it would be unreasonable to reject the goods. But in practice, commercial parties do not like the uncertainty that stems from s15A and almost always exclude its application.

George Mitchell (Chesterhall) Ltd. v. Finney Lock Seeds Ltd. [1983] 2 AC 803

Facts The defendants supplied seeds to the claimants. One of the terms of the contract was that 'all liability' would be limited to replacement of the seeds or refund of the price paid. Due to the defendant's negligence, the seeds were ungrowable and had to be ploughed out. The cost of this was far more than the cost of the seeds. Held The limitation of liability clause, on its clear words, covered liability caused by the defendants negligence. However, in this case the limitation of liability clause would not apply because it was not 'fair or reasonable' within the meaning of s55(4) of SoGA 1979.

Kasler v OTP Jelzalogbank Zrt of 30th April 2014 (C-26/13)

Key points A Hungarian Court made a preliminary reference to the ECJ seeking guidance on whether a particular term in a consumer credit agreement, relating to the calculation of installments, was part of the 'main subject matter' of the contract or part of the 'price', in which case it would not be assessed for unfairness. Importantly, the Court held that the clause could not be part of the 'price', but could potentially be part of the 'main subject matter' of the contract. However, it stressed that both were to be interpreted strictly. The Court also gave guidance on the transparency requirement.

Aziz v Caixa d'Estalvis de Catalunya, Tarragona I Manresa of 14th March 2013 (C-415/11)

Key points A Spanish Court made a preliminary reference to the ECJ regarding the interpretation of the phrase 'unfair term'. The ECJ responded with quite specific guidance on this point.

Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) [123]- [153]

Key points After considering the caselaw, Leggatt J decided that it would be appropriate in this case to imply a term of good faith. NB: does this mark a shift towards the continental position, where good faith is expected by default in all contractual situations?

Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 at [56] - [71]

Key points Beatson LJ stressed that, in long term contracts, a more flexible approach to interpretation may need to be adopted. However, this should not extend into the implication of terms.

Chartbrook Ltd. v Persimmon Homes Ltd. [2009] AC 1101 (especially paras 48 - 67)

Key points Lord Hoffmann clarifies the requirements for rectification in the post-ICS caselaw. Rectification is to be available wherever there is a 'prior common consensus' which is not appropriately recorded. Crucially, evidence of oral exchanges and negotiations may be relevant in rectification- this is likely to be the only area in which rectification now gives claimants an advantage over 're-interpretation' of the contract.

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

Key points Lord Hoffmann's restatement was the cumulation of a general shift towards a less literal and more contextual approach to the interpretation of contracts. However, it can be debated how far the law has now begun to shift back in the other direction.

Arnold v Britton [2015] UKSC 36, [2015] 2 WLR 1593 esp [14]-[23]

Key points Lord Neuberger in this case indicated a slight shift in emphasis back towards a literal reading of contracts. The core point is that commercial common sense cannot ordinarily be used as a replacement for the actual words that the parties used- this would in effect be the courts rewriting contracts. Further, although the whole matrix of fact must be considered when interpreting contracts, Lord Neuberger made clear that a central consideration would be the actual language used.

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72 at [14] to [32] and [58] - [77]

Key points Lord Neuberger shifts away from Lord Hoffmann's approach to implication of terms, restressing the importance of the old tests of necessity for business efficacy. Similarly, Lord Sumption makes it clear that these old tests are in no way to be watered down by Lord Hoffmann's judgment.