INCORPORATION Which terms are part of a contract, which aren t, and why. Two categories: signed and unsigned Signed documents incorporate terms save fraud but must be objectively contractual Unsigned documents can incorporate terms before formation with reasonable notice. INCORPORATION BY SIGNATURE TERMS The traditional rule in L Estrange v Graucob SCRUTTON LJ: when a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not Two questions: 1. Is the document objectively contractual? 2. Is there fraud, misrepresentation (even innocent)? Toll, Curtis Toll, Curtis Toll (FGCT) Pty v Alphapharm Pty Ltd (2004) 219 CLR 165 FACTS: a liability exemption clause was provided on the overleaf of a form application for credit with the note please read Conditions of Contract (overleaf) prior to signing, in dealings between a medical supplies biz and Toll shipping. Done in the course of business in which contracts are usual: goes to intention and objectivity Indication that a situation involving unusual terms or an unexpected contract would be a case of misrepresentation, covered in the traditional rule. A reasonable reader of a signed document that is known and intended to affect legal relations would believe that the signatory has read and approved the contents of the document or is willing to take the chance to be bound by those terms. L Estrange upheld, objectivity rules. Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 FACTS: Curtis took a wedding dress to Chemical. They asked her to sign a receipt, stating that it contained an exemption from liability for certain narrowly defined damages. She signed. The receipt actually contained a universal exemption clause. The dress was stained. Curtis showed misrepresentation. Misrepresentation is anything apt to convey a false impression Can be implied or left unsaid: condition covers sequins was true but created the false impression it only covered sequins. Title receipt suggested against contractual nature, as did setting. In absence of explanation, that would be enough to mislead, the impression being there were no conditions, ie, no contract. Page1
INCORPORATION BY NOTICE Terms can be incorporated into unsigned contracts by reasonable notice. Suggestion of greater notice required for onerous terms. Oceanic Sun Line Shipping Co Inc v Fay (1988) 165 CLR 197; PRD [12.55] FACTS: Dr Fay (Wray) purchased a ticket for a cruise around Greek islands in Sydney. He received an exchange order which he duly exchanged in Athens for a formal ticket which included information purporting to be contractual terms, including one which stipulated that any action would take place in Greek courts. He got injured trap shooting while on the boat (seriously). Fay instituted proceedings in SCNSW; the Co applied to stay proceedings but lost at every level. BRENNAN J Timing: an argument that the exchange order resembles tickets from MacRobertson Miller is rejected the reserved right to cancel a given cruise is not so wide as to preclude any contractual rights. If a cruise was cancelled the plaintiff was still entitled to a refund or new fare. Exchange order obliged Co to provide ticket: contract already formed by then Not reasonable for person to purchase the right to travel to Greece to inspect terms to decide whether to accept carriage: contract formed in Aus: conditions on ticket provided after formation. Reasonable notice Co had to do all that was reasonably necessary to bring the terms to the notice of the other party Only step taken was a note about the existence of terms which were not available. Non-available terms insufficient here to make Fay aware of the terms. As he was not aware of the terms they were not incorporated. Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; PRD [12.65] FACTS: Thornton drove into an automated parking garage. He received a ticket from a machine. On entering, the only terms available were on the outside of the building, limited to limiting liability for damage to cars. On leaving later, he was struck and injured. The Co claimed exemption from liability due to the ticket stating that it was subject to conditions which were printed inside the parking lot, inaccessible to an entering customer. DENNING MR: MacRobertson-style ticket analysis is of no application to mechanised ticket sales as there is no opportunity to reject printed terms. Thus the offer is in placing the machine there, acceptance comes with entering the fare, and the contract is concluded before issuance of the ticket which therefore cannot incorporate new terms. o Distinguished from ticket cases where a lack of contest about terms indicates acceptance If the ticket machine is really a guy in disguise: the essential question is the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonaly sufficient to give him notice of it More unusual or rights-destroying terms require more thorough notice to be given. MEGAW LJ agrees, stating it would be farcical to expect customers to seek out the conditions prior to entry. Would be practically impossible. Page2
S GORDON WILLMER: machines! Co did not do what was reasonable to bring attention to terms=not incorporated. INCORPORATION OF STATEMENTS MADE DURING NEGOTIATIONS Two broad questions: were the statements capable of giving rise to contractual obligations (that is, were they promissory)? And are they excluded by the parol evidence rule? Oscar Chess Ltd v Williams [1957] 1 WLR 370; PRD [12.200] FACTS: the defendant traded in his mother s car, said to be a 1948 model, as stated in the rego book. It was in fact a 1939 and significantly less valuable, as the dealer-appellant later discovered. The trial judge found the year of the car to be a term of the contract. The defendant appealed. DENNING LJ: A representation expressed as an opinion or belief is distinct and opposite from a warranty, a guarantee. The first consideration in finding a promissory term is considering the language: words like promise, guarantee, warranty, give you my word ground the inference of a promise. Language such as I believe or estimate (JJB) ground an inference of opinion/representation. Where such language is absent, consider If an intelligent bystander would reasonably infer that a warranty was intended. The knowledge or position of the person making the statement will be relevant: here the seller was in no position to guarantee the year of the car, as he was no expert and had purchased it second-hand. As such, there was no warranty. Would an intelligent bystander infer a promise? First from the language then from the circumstances? JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435; PRD [12.195 FACTS: Blackney sought to buy a boat from JJS. He sought a comparison of engines and one was provided, which stated the ultimately selected engine would make the boat capable of 15mph. On that basis preferred over an independent expert s contrary opinion Blakney bought the boat and engine. When it could only reach 12mph he sued, claiming the comparison document was a warranty and not mere representation. it must be remembered that experts will not be held to language which is not promissory. BARWICK CJ, KITTO, MENZIES, OWEN and WALSH JJ: the language, estimated speed was not sufficiently promissory to form a warranty: contrary to the Full Court s decision, estimated is not an expression of aproximation but of opinion, incapable thereby of being promissory. Similarly, a collateral contract can only arise based on promissory language. Blakney could have insisted on the speed being a contractual term, or elicited a promise which would give rise to a collateral contract. Instead he relied on his own judgment informed by JJS s expertise, rather than other opinions. PAROL EVIDENCE RULE: INCORPORATION Page3
Limits the extrisic evidence that can be brought regarding a written contract, explained in Goss v Lord Nugent by Denman CJ: If there be a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties either before the written document was made, or during the time that it was in a state of preparation, so as to add to or subtract from, or in any manner to vary or qualify the written contract. If a statement may be taken as promissory, it still must be allowed in past the PER. Three ways of avoiding PER: written document is only part of the whole contract; collateral contract; and estoppel (probably). Also rectification. State Rail Authority of NSW v Heath Outdoor Pty Ltd (1976) 7 NSWLR 170; PRD [12.135] By logic the rule only operates on written documents which are the complete integration of the contract. Contracts which are only partly reduced to writing in truth have their existence off the page as well as on, so the rule has no applicability. As such, a question arises as to what evidence, if any may be led to show that a contract was not truly complete FACTS HO contracted with SRA to place advertising hoarding along rail lines. Cl 6 of their agreement provided that one month s notice would be given before terminating the agreement, and that no compensation claim would arise. HO placed cigarette ads on the property. Shortly afterward the Gov banned such ads. SRA sought to terminate. HO and officers of SRA had had several discussions about the contract prior to its signing, which led to an argument by HO for extrinsic evidence to be admitted. These included a reassurance that cl 6 should not be a problem as it was only used for unusual and extreme cases and probably would never apply to HO. McHUGH JA (Kirby and Glass agreeing separately): the rule has no operation until it is first determined that the terms of the agreement are wholly contained in writing. The tendering of oral evidence to prove a contractual term, therefore, cannot be excluded until it is determined that any terms in writing record the whole of the parties agreement. It must be established that the parties assented to the written document as a complete integration of the contract. the contract was very thorough in terms the defendant lacked authority to change the contract, which was known to Heath. The terms argued for would have been inconsistent with cl 6, which the parties knew of and assented to keeping. A document which appears complete gives rise to the presumption of being a complete reduction of the contract; this presumption is rebuttable by evidence showing its incompleteness. Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471; PRD [12.190] Equuscorp shows the High Court s latest direction on the issue: contract finality is to be upheld, as an expression of the objectivity principle. It was not argued there that the contract was only partly written so the judgment in Heath is still good. Which approach will ultimately win out is unclear, for the moment, Heath is authority for partly written contracts. Equuscorp, however, shows that where Page4
written terms are inconsistent with earlier oral terms, it is to be assumed that the earlier agreement was discharged and replaced with the written one, which takes precedence by values of objectivity and finality. FACTS: GI invested in a limited liability partnership. GI funded its investment by borrowing from a lender related to the investment promoter. However, the project failed and GI defaulted on the loan. The lender had assigned its interests under the loan (ie the right to demand repayment) to E; E sought to enforce the written contract between GI and the lender. GI argued that an earlier oral agreement had been reached between itself and the lender that limited recourse to the prepaid interest and two capital payments. GLEESON CJ, McHUGH, KIRBY, HAYNE and CALLINAN JJ: the respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The existence of a formal written contract will usually be strongly suggestive that earlier oral terms have been superseded Where a verbal agreement is replaced by a written one, the inconsistencies will be resolved in favour of the latter. Hoyt s Pty Ltd v Spencer (1919) 27 CLR 133; PRD [12.155] Another area where the parol evidence rule has no applicability is where a collateral contract can be established. This is because the collateral contract is a separate agreement and thus not bound by the finality of the written terms of the main contract. There is a restriction, however: the rule from Hoyt s v Spencer held that the collateral contract could not alter the terms of the main: this is a rule derived from logic. Where entering a main contract is given as consideration for entering a separate agreement, that consideration must not thereby be altered, or it would destroy the nature of the bargain made. Collateral contracts will of course alter the contractual relations between the parties and will thus in some way always alter the main. As such courts will allow some minor variation, like the addition of an obligation not expressly provided for but not ruled out or clashing with any express provision. FACTS: Spencer leased property from head lessors. He then leased them to Hoyt s. Their contract stated that Spencer could terminate the lease by giving Hoyt s four weeks notice. When he eventually did so, Hoyt s sued, claiming that, in consideration of its taking the lease, Spencer claimed he would not terminate the lease unless requested and required to do so by the head lessors. To be a collateral contract the statement must be (i) made as a promise (JJ Savage); (ii) intended to induce entry into the contract (JJ Savage); and (iii) consistent with the terms of that contract. The consistency requirement is known as the rule in Hoyt s v Spencer: the collateral contract may add to, but must not alter, the provisions of the main contract the two must be able to stand together, with the second being only supplementary to the main. By nature, any collateral contract is going to alter in some way the express terms: they will often qualify certain rights or terms. The Court will look for contradiction or greater alteration: here an express discretion to terminate at any time for any reason was contradicted by the posited restriction on its operation. Here the posited collateral contract qualified the (unqualified) right accorded Spencer in the main contract. It was therefore inconsistent and not applicable. H s promise to enter the contract constitutes an agreement to accept all the terms. The two contracts must be able to stand together: The truth is that a collateral contract, which may be either antecedent or contemporaneous being supplementary only to the main Page5
contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made [147]. Manning Motel Pty Ltd v DH MB Pty Ltd [2013] NSWSC 1582 FACTS: The plaintiffs leased the Manning from the defendants and had a dispute as to the terms. LINDSAY J: They argued a collateral contract, misleading or deceptive conduct and possibly an estoppel by representation from the same facts. The promise was that the defendant s other pub would purchase overflow accommodation not less than $4000 a month the truth of this submission is disputed. The judge rejects the ACL claim on the grounds that the conduct was electing not to honour a contractual promise, and contract law provides adequate remedy: contractual remedy by necessity excludes equitable and MDC remedies no unconscionability or loss. The defence was run on (i) Graucob; (ii) Statute of Frauds; (iii) Hoyt s v Spencer. However there was no entire agreement clause; also the alleged collateral contract was made with a third party no bright line rule of law insists the rule from Hoyt s holds true for third-party collateral contracts: with differing parties the logic for consistency disappears. Finally, the question of whether evidence may be led to establish an estoppel based on precontractual terms is unsettled. The competing concerns are contract finality and the role of equity as remedial of common-law wrongs. In Saleh the equitable nature of promissory estoppel won out, and in Branir it was the logic of allowing equity to right wrongs; in Norco the opposite approach was taken. In Manning a collateral contract saved the day; estoppel and statutory misleading or deceptive conduct remedies thereby losing any logic for action. Saleh v Romanous [2010] NSWCA 274 FACTS: S sold land to R and assured him that his brother, who owned adjoining land, would cooperate with R in a joint venture, or he would get his money back. It fell through and R sought to recover. Both the trial judge and NSWCA (HANDLEY AJA) found for R; that despite the existence of an entire agreement clause promissory estoppel could still operate as a creature of equity it trumped contract; estoppel by convention could not thus similarly operate (this seems dumb, unification now!). The contract was thus rendered unenforceable; a statute provided the Court with the power to compel return. Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 BRYSON J: favours the finality and completeness of contracts over incompletely considered forensic attempts at estoppels. Contra Norco: Branir Pty Ltd v Owston Nominees [2001] FCA 1833 Contained an entire agreement clause; Allsop J (with whom Drummond and Mansfield JJ agreed) decided the issue elsewise, but made some comments on estoppel: that where the conduct which gives rise to an equitable estoppel is the entry into a contract then there is a place for estoppel, I think. Page6
RESPONDING TO THESE PROBLEMS Was the language promissory? Were there words of guarantee, so that a reasonable person would infer that they were represented the word of the other? Alternatively, were there words disavowing warranty? If no answer is reached: on the totality of the evidence, would an intelligent bystander conclude the statement was intended to be binding? Who were the parties? What was their relative standing, knowledge and power? What was the context? What hat were they wearing? If the statement was promissory, the parol evidence rule must be dealt with. If the statement was not promissory, it may be a representation, capable of giving rise to statutory remedy or remedy for misrepresentation, or estoppel. Page7
INTERPRETATION Whereby the meaning of words in a contract is in dispute. The aim is to 'choose between meanings' of the words which always remain paramount, it is not always permissible to even look to outside evidence, and when that is done the evidence must not contradict, alter or vary the meaning of the words, just clarify them. This is another enactment of the parol evidence rule. The nature of the insistence on objectivity is also discussed, and exclusion clauses. THE TRUE RULE AND ADMITTING EXTRINSIC EVIDENCE 22. The true rule is that 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. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. (352, Mason J) Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Ambiguity is words capable of bearing more than one meaning. o If ambiguity is established extrinsic evidence may be admitted to aid construction o If not then its not. Evidence of prior negotiations to a contract are admissible to establish objective background facts know to both parties and subject matter of contract. o Extends to facts knowable by both parties only. Evidence of subjetive understandings is never admissible o Possible exception where both parties ruled out a meaning or inference which the objective approach would otherwise find. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal : limit on objectivity. Extrinsic evidence, when admitted, cannot contradict or alter the text, just assist in choosing a meaning the language is already capable of supporting. Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) Competing meanings may constitute sufficient ambiguity. Expressly refer to the competing meanings and state that Codelfa is to be preferred until they say otherwise. FACTS: on a contract for lease of an area in the Gardens including the construction and operation of a car park inside. The contract provided that the Trust may increase the rent, and that in making that determination it may have regard to a list of issues. The word may here provided the ambiguity: the Council contended it would not extend to all other, non-mentioned considerations, such as economic viability, that is, that it was exhaustive. GLEESON CJ, GAUDRON, McHUGH, GUMMOW and HAYNE JJ Codelfa is the rule in Australia. The use of the word 'may' without specifying whether the list is exhaustive or not is apt to be ambiguous. To that extent extrinsic evidence is permissible to find the clause's objective meaning. Extrinsic evidence found: Page8
o the transaction was one between two public authorities, o its purpose being the provision of public amenities 'and without providing for the obtaining of one public authority of commercial profit at the expense of the other; o it was the lessee (Council) which was responsible for the substantial cost of construction of the new facility; and o the concern of the parties had been to protect the lessor from financial disadvantage suffered from the transaction' with this evidence in mind the may have regard is to be read as an exhaustive list of factors which may be considered if the circumstance arises, rather than things that may be considered amongst others. Kirby J held that may is permissive and not exclusive. He would end there. The Court found ambiguity; therefore it is not necessary to decide which approach to take as once ambiguity is established extrinsic evidence is admissible under either approach. MAGGBURY (2001) AND INTERNATIONAL AIR TRANSPORT (2008) PRD [13.15] Suggests HCA had adopted English test for allowing extrinsic evidence, without needing ambiguity. No statement of overturning Codelfa. Interpretation of a written contract involves, as Lord Hoffman has put it: "The ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. And International Air Transport v Ansett (HCA 2008): where Gleeson CJ said: In giving a commercial contract a business-like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An apreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market. [8] This line of cases led to Franklins v Metcash (FCFCA 2009) finding that Maggbury was the law, and Codelfa and RBGDT did not stand as precedent, which led to: Western Export Services v Jireh International [2011] HCA 45; PRD [13.18] Refusal of application for appeal, not binding as precedent but clear statement that the Court considers the true rule binding til they say otherwise. Electricity Generation Corporation (t/a Verve Energy) v Woodside Energy Ltd [2014] HCA 7 Note that this case seems to follow Maggbury, but the focus is textual and contextual. Ambiguity may have been assumed due to reasonable in cl 3.3(a). FACTS: a contract for the supply of gas included a clause regarding the supply of supplemental quantities of gas. Cl 3.3(a) provided the sellers will use reasonable endeavours to supply the quantities; cl 3.3(b) provided that the sellers could have consideration of all relevant commercial, economic and operational matters in determining whether they were able to supply the required quantities. Then an explosion. The price skyrocketed. While the long-term daily rate locked in the price for that gas, the supplemental supply was governed by cl 3.3 and the sellers put that that meant they could have regard of commercial realities in determining whether they were able to supply the supplemental gas; the buyers put that cl 3.3(a) was an obligation so long as the sellers were able. Page9