Implied Terms and Exclusion Clauses Contents Terms establishing the contract. Express terms. Implied terms. Representations. Exclusion Clauses. Warrantee and Innominate terms Sale of Goods Act Unfair Contract Terms Act
Introduction Once a contract has been formed, it then becomes necessary to identify the terms of the contract. The terms of the contract impose the obligations on each party. Before identifying what type of terms there are we must first distinguish mere representations, which are not considered to be terms.
Terms What are Terms and what are Representations. Representations are NOT part of the contract. Contracts contain both implied and express terms.
Terms Different terms have different levels of significance for the contract. The distinction is important for the remedies which can be claimed under breach. Terms are included to restrict liability – exclusion clauses.
Express terms A contract can be made by…. WORDS which are: • Written • Spoken • Partly written/spoken These are express terms
Express Terms Outlined expressly in the offer – what the key elements are. Terms which the offeror will accept to be bound by. Clearly outlined so all parties know of the terms.
Representations Negotiations – not all expressions will form part of the contract. Breach of a term – Breach of contract. Breach of a representation – No breach. Tests developed to identify which is which.
Tests 1) Relative degrees of parties knowledge – Oscar Chess v Williams  1 All ER 325 A private seller of a car obtained £290 in part exchange on the basis that it was a 1948 model. It was in fact, a 1939 model. The registration book had been fraudulently altered by a previous owner, but the seller was innocent of this. The price of a 1939 model was considerably lower. The plaintiff motor dealer would still have been prepared to buy the car, but at a lower price had they known the true facts. The Court of Appeal held, by a majority, that the statement was not a term of the contract. The main reason for this decision was that the seller had no special knowledge as to the age of the car, while the buyers were car dealers, and so in at least as good a position as the seller to know whether the statement was true.
Tests 2) Reliance shown to be placed on the statement – Bannerman v White (1861) CB(NS) 844 The buyer of hops asked whether sulphur had been used in their cultivation. He added that if it had he would not even bother to ask the price. The seller assured him that it had not. This assurance was held to be a condition of the contract. It was of such importance that, without it, the buyer would not have contracted.
Tests 3) Strength of the statement – Schawel v Reade  2 IR 64 The defendant told the plaintiff, who required a horse for stud purposes, that the animal was 'perfectly sound'. A few days later the price was agreed and, three weeks later, the plaintiff bought the horse. The statement was held to be a term of the contract, but here the defendant, who was the owner of the horse, would appear to have had special knowledge.
Tests 4) The time at which the statement was made.
What is the ‘test’ for inclusion of a term? The test is objective Based on intention and underpinned by the notion of freedom of contract BUT… Reasonable reliance and expert knowledge
Representations v Terms The question of whether a statement made by a party is a term or a mere representation is important because the statement’s classification has implications when determining the issues of breach and remedies.
Representations v Terms • Characteristics of terms • contractual force: binding • promissory • breach of a term: remedy of damages and/or rescission depending on type. • Characteristics of representations • not contractually binding • usually a statement made by one party to the other party before the contract is formed • breach of a representation: typical remedy damages • contract remains in force unless there is a misrepresentation.
Representations v Terms • How do the courts distinguish between a term and a representation? The courts attempt to give effect to the parties intentions, and they do this using the objective test. The courts ask : What would a reasonable person believe to be the parties intentions in regard to the contractual force of the statement. • Why is the distinction important? The major reason for the distinction is the type of remedy that is available. For breach of a term damages are available as a remedy. With a breach of a representation no remedy is available unless it was made fraudulently/negligently.
Oral Contracts • With oral contracts the terms of the contract will be determined by the words actually used by the parties when the contract was made. • This is a question of fact and will be determined by the court. The presence of witnesses will often be crucial.
Implied Terms By the courts – The moorcock  Shirlaw v Southern Foundaries 
Types of Term Conditions – Most important terms – go to the heart of the contract. Breach allows the injured party to end the contract.
Types of Term Warranty – Not as fundamental a term as a condition. The injured party can claim damages but MUST go ahead with the contract. Bettini v Gye .
Types of Term Innominate Terms – Clarification difficult – other way of identifying the term needed. Hong Kong Fir v Kawasaki 
Exclusion Clauses Definition “a contractual exclusion clause is a term of the contract whereby one party seeks to exclude or restrict a liability or legal duty which would otherwise arise”.
Exclusion Clauses Can be by - Contract Notice (signs) Reasons - Freedom of contract Restricted due to power relations.
Exclusion Clauses Rules – Must be part of the contract (Olley v Marlborough ) (Thornton v Shoe Lane Parking ) Must be incorporated into the contract (Chapelton v Barry )
Exclusion Clauses (McCutcheon v David MacBrayne ) (L’Estrange v Graucob ) (Thompson v LMS Railway ) (Spurling v Bradshaw ) (Andrews v Singer and Co )
Types of Terms—Conditions and Warranties 1) Condition • A condition is a statement/term that forms an essential part of the contract. It is a term that goes to the root of the contract. • Breach of a condition entitles the innocent party to claim damages and rescind (terminate) the contract: Associated Newspapers v Bancks.
Types of Terms—Conditions and Warranties cont… 2) Warranty • A warranty is a term of the contract that is not essential and does not go to the root of the contract. • A breach of a warranty entitles the innocent party to damages only. The innocent party is not entitled to rescind the contract: Bettini v Gye.
Exclusion Clauses: the Position at Common Law • An exclusion clause is a term of the contract that limits or excludes a liability from one party that they would otherwise be subject to. • The function of an exclusion clause is to limit or exclude liability for breach of an express/implied term, or even negligence in a contract. • The courts approach to interpreting such a clause is to interpret them narrowly.
A) Signed Documents • L’Estrange v Graucob • Tilden Rent-A-Car Co v Clendenning • Le Mans Grand Prix Circuits Pty Ltd v Iliadis
B) Unsigned Documents: Ticket Cases • With an unsigned document, an exclusion clause will be binding only if the clause was brought to the notice of the customer. This notice must be reasonable notice and is determined objectively by the courts. • Parker v SE Railway • Thompson v LMS Railway Co. • Baltic Shipping v Dillon • Thornton v Shoe Lane Parking.
C) Contractual Document • The document containing the exclusion clause must be of a contractual nature before the courts will hold the exclusion clause to be binding. To determine whether a clause is a contractual document the courts employ the reasonable person test and ask: • Would a reasonable person expect such a document to contain an exclusion clause or would it merely represent a receipt or voucher? • Causer v Browne.
D) Time of Notice • If notice of the exclusion clause is not given until after the contract has been completed, the exclusion clause will not be binding:Olley v Marlborough.
E) Previous Course of Dealing • If the customer has had previous dealings with the defendant, the court will more readily infer knowledge of the exclusion clause. If the customer knows about the clause through his previous dealings then he/she will be bound by it: Henry Kendall & Sons v William Lillico.
F) Effect of Misrepresentation • If the effect/scope of the exclusion clause has been misrepresented to the customer then the exclusion clause is not binding: Curtis v Chemical Cleaning Co.
G) Contra Proferentum Rule • The contra proferentum rule is a rule of interpretation used by the courts. The rule provides that the courts will interpret the exclusion clause against the party relying on the clause: Elder Smith Goldsbrough Mort Ltd v McBride White v John Warwick & Co Ltd  1 WLR 1285.
H) Scope of the Exclusion Clause • The scope of the exclusion clause is limited to only acts performed within the scope of the contract. • The exclusion clause will not exclude liability for acts occurring outside the contract, AND the scope of the exclusion clause is a matter of construction/interpretation by the court: Darlington Futures Ltd v Delco Australia P/L Sydney City Council v West.
Exclusion Clauses: The Position under Statute Law • Given the view that exclusion clauses are generally considered to be unfair to consumers, legislation has been enacted to modify the operation of exclusion clauses in relation to the sale of goods/services. • This is especially the case for the implied terms in the Sale of Goods Acts of the various states and the TPA. • See: s 68 TPA.
SGA - Definitions • Definition of ‘sale of goods’ - s.2(1) • Meaning of ‘goods’ - s.61(1) • Meaning of ‘sale’ • SGA - Implied Terms • Ss. 12-15 most important and relevant. • S. 12 - Title to goods • Rowland v Divall  • s. 13 - Description of goods • Harringdon v Christopher Hull 
SGA - Implied Terms • S. 14(2) - Quality of the goods • Bartlett v Sidney Marcus  • S. 14(3) - Fitness for purpose • Grant v Australian Knitting Mills  • S. 15 - Sale by sample • Godley v Perry 
UCTA  • S. 2 (1) A person cannot exclude or restrict his liability for death or personal injury resulting from negligence. • S. 2 (2) Cannot exclude liability for negligence unless it is reasonable. • Ss. 6 and 7 – Reference to SGA .
UCTA  • S. 12 - Dealing as a consumer. • A person who makes a contract NOT in the course of business. • With a person who DOES make the contract in the course of business. • The goods supplied or transferred are of a type which are ordinarily supplied for private use or consumption.
UCTA  • Schedule 2 - • The following will be considered to assess the resonableness of exclusion clauses. • The strength of the bargaining positions. • Whether any inducement was given. • Whether the customer knew or should have known about the existence of the term.
UTCCR  • Extends UCTA  • Invalidates terms which are unfair. • Requires plain English is used. • Challenge by Consumer Organisations.
Consumer Protection Act • The liability is Strict (means you only have to establish that the product caused the damage - no negligence, wrongful inattention etc needed). • Criminal Law: S. 10 - Criminal offence to supply goods which are not reasonably safe. • Consumer Protection Act • Part 1 - adds to common law rights • To bring a successful claim the plaintiff must establish - • 1) A product contained a defect • 2) The plaintiff suffered damage • Consumer Protection Act • 3) The damage was caused by the defect • 4) The defendant was either • a producer - • an own-brander - • an importer / supplier into the EU - • of the product
Consumer Protection Act • Product - • Contained in s.1 (2) - includes goods, electricity gas - but not land, primary agricultural produce and unprocessed game. • Consumer Protection Act • Damage - • Can be claimed for death, personal injury, and loss and damage to property. The property must be - • 1) The type ordinarily intended for private use or consumption
Consumer Protection Act Damage – 2) Intended by the plaintiff mainly for his own private use, occupation or consumption. Damages must exceed £275 (which is the damage caused by the defective product not the product itself).
Consumer Protection Act Defences - If the defect is due to compliance with any EU rules this is a defence If the defendant did not supply the goods
Consumer Protection Act Defences - If the defendant did not supply the goods in the course of a business The defect did not exist in the product at the time it was supplied by the defendant