The Contents of the Contract
This chapter deals with ways in which a court decides on the precise obligations that are contained in a contract. In doing this, the following issues become relevant:
Is a pre-contractual statement intended to be a term of the contract? This involves distinguishing between representations and terms, and identifying the factors, such as the importance of the issue, which help the courts to make a decision.
Remedies for pre-contractual statements. Where a statement is not part of the main contract, the party to whom it was made may nevertheless have a remedy on the basis of a collateral contract, or for misrepresentation.
If a term has been put forward in writing, but not in a signed document, has it actually been incorporated into the contract;
The precise meaning of a term – this will generally only arise where the term is ambiguous. The court will not generally accept oral evidence as explaining a written term (though there are exceptions). In business contracts the courts will tend to adopt a ‘purposive’ interpretation, taking account of the commercial context.
Implied terms. There are two main bases on which terms may be implied:
Common law. Courts will normally only imply terms which are ‘necessary’, or which fill a clear gap in a contract of a common type (for example, landlord and tenant);
Statute. The main examples of statutorily implied terms are those contained in the Sale of Goods Act 1979, relating mainly to the quality of goods.
Statutory controls. In relation to consumer contracts, all the terms of an agreement must comply with the requirements of the Unfair Terms in Consumer Contracts Regulations 1999.
This chapter is concerned with the situation where the parties have fulfilled all the requirements for making a valid contract, as described in Chapters 2 to 4. It may then become necessary to determine exactly what the obligations are under the contract. Problems may arise in a number of ways. There may, perhaps, have been a lengthy period of pre-contractual negotiation, and it may not be clear which, if any, of the statements which were made at that stage were intended to form part of the contract. The contract may be in writing, and yet one of the parties may allege that it does not truly represent their intentions. In this case the job of the court will be to ‘construct’ the contract in order to decide what the language it contains should be taken to mean. The task of ‘interpreting’ or ‘constructing’ the contract is likely to be influenced by the surrounding circumstances, including the relative bargaining power of the parties.1 Such a contextual approach would be easier if the courts adopted a ‘relational’ approach to construction.2 This would enable them to take a broad view of the commercial and personal factors surrounding the agreement, both at the time it was made and as it has developed. Under the classical theory, the courts are limited to matters which may help them to decide what they think that the parties actually meant at the time the agreement was made.
The process of construing a written contract can also, in some circumstances, be constrained by statutory regulation.3
In other situations the contract may be purely verbal, in which case there may be a dispute as to what was said or promised, and by whom. The problems here are likely to be mainly evidential and so outside the scope of this book. Nevertheless, issues of construction may arise here in a similar way to written contracts.
Some of the problems in deciding what the terms of a contract are may be resolved by the rules which the courts have developed to enable terms to be implied into a contract. Moreover, in certain situations, terms will be implied by statute, irrespective of the wishes or intentions of the parties.
The order of treatment adopted here is to look first at the question of pre-contractual statements, and the remedies that may be available for them. Second, the approach to express terms and their interpretation will be discussed. Finally, the rules relating to the implication of terms, both at common law and by statute, will be considered.
The importance of identifying those pre-contractual statements which do not form part of the contract arises from the question of the remedies that will be available in each case. If a statement amounts to a promise which forms part of a contract, then a person who breaks it will be liable for the full range of contractual remedies discussed in Chapter 15. In particular, the claimant will normally be entitled to damages which will compensate for any profits that may have been lost as a result of the broken promise. A statement which is not a term, however, and which turns out to be untrue, or which contains a promise which is broken, may still give rise to a remedy, but on a different and often more restricted basis. This is discussed in the next section (see below, 6.4) on remedies for pre-contractual statements.
Where there have been statements made prior to a contract, and there is then a dispute as to whether or not they were intended to form part of the contract, how do the courts resolve the issue? The courts’ professed approach is (as in many other areas of contract law) to try to determine the intentions of the parties. Did they intend the statement to be contractually binding? In looking at this, the courts generally adopt an approach based on ‘detached objectivity’,4 that is, asking what the reasonable third party would have taken the parties to have intended.5
In trying to identify the answer to this, there are a number of matters that will be considered. For example, the importance apparently attached to the statement by the claimant may be very significant, as in Bannerman v White.6
Key Case Bannerman v White (1861)
Facts: A prospective buyer of hops had been assured that sulphur had not been used in their production. He had made it clear that he would not be interested in buying them if it had. After he had bought them it turned out that sulphur had been used, and he wished to reject them. The seller argued that the statements about whether sulphur had been used were not part of the contract.
Held: The buyer was entitled to reject the hops for breach of contract. The undertaking that no sulphur had been used was a ‘preliminary stipulation’.7 If it had not been given, the purchaser would not have bothered to inquire about the price and would not have continued to negotiate towards a contract. The statement that sulphur had not been used was part of the contractual obligations.
Evidence, such as was given in this case, that the truth of a pre-contractual statement is a precondition of any binding agreement being reached will strongly support the view that it was intended to form part of the contract.8
In this case there was, in effect, a guarantee by the seller that sulphur had not been used, breach of which entitled the buyer to reject the goods. Even where the matter is of importance to the recipient of the statement, however, the maker will not be taken to have intended to guarantee its truth if it has been made clear that the truth should be verified independently. In Ecay v Godfrey,9 for example, the seller of a boat made statements as to its condition, but also advised the buyer to have it surveyed. In this situation, it was clear that the seller could not be taken to have intended his statements to have formed part of the contract. The same principle will apply where such verification would normally be expected, even if it has not been actively encouraged. This will normally be the position, for example, in relation to the sale of houses, where a purchaser will generally be expected to commission an independent survey, rather than relying on the statements of the seller.10
It would be possible, of course, to engage in a full-scale inquiry in each case as to the evidence of the parties’ intentions. This would be time-consuming, however, and therefore not a very efficient way of proceeding. In practice, in situations where it is not clear that the pre-contractual statement amounted to a precondition for making the contract, the courts have developed three rather more specific tests which they use as a means of determining whether it should be regarded as creating a contractual obligation. These tests tend to operate as presumptions of an intention as to whether the statement is part of the contract, which may, of course, be rebutted by other evidence suggesting the contrary intention. The tests focus on (a) whether the contract was put into written form, (b) whether the claimant was relying on the skill and knowledge of the defendant, and (c) the lapse of time between the statement and the contract.
6.3.1 WAS THE CONTRACT PUT INTO WRITTEN FORM?
As we saw in Chapter 2, there is generally no need for a contract to be put into writing in order for it to be a valid agreement. On the other hand, if the parties have taken the trouble to commit their contract to writing, the courts will be reluctant to find that it does not contain all the terms that were important to either party. Moreover, if a written contract has been signed, the party who has done so may find it virtually impossible to depart from its express provisions.11 This is often referred to as the ‘parol evidence rule’, by virtue of which the courts will be reluctant to accept oral evidence in order to add to the terms in what appears to be a complete written contract. The rule and the exceptions to it are further discussed, later in this chapter, in the context of the identification of the express terms of a contract. This was part of the reason for the rejection of an alleged term (relating to the age of a motorcycle) in Routledge v McKay.12 The purchaser of the motorcycle had prepared a ‘written memorandum’ at the time of the sale, but this was silent as to the age of the machine. The Court of Appeal was not prepared to say that this definitely precluded any term other than those specified in the memorandum being part of the contract, but commented that:13
… as a matter of construction, it would be difficult to say that such an agreement was consistent with a warranty being given at the same time so as to be intended to form part of the bargain then made.
The rule is not an absolute one, however, and if the party can show that the term which was not included was of the utmost importance, then the courts may be prepared to allow it to be added. This is most likely to be the case where the written contract is in a standard form, rather than the result of individual negotiation. An example is Evans & Son Ltd v Andrea Merzario Ltd.14 The plaintiffs had made a contract for the transport of machinery by sea. They had made it clear to the defendants that it was of great importance that the machinery should not be carried on deck. The defendants had given an oral assurance that the plaintiffs’ machinery would be carried below deck. The printed standard conditions for the contract, however, allowed for freight to be carried on deck. The plaintiffs’ machinery was carried on deck and was lost overboard. It was held by the Court of Appeal that in this case the verbal assurance took precedence over the written conditions. The statement that the plaintiffs’ goods would be carried below deck was a contractual term, and the plaintiffs were entitled to succeed.
6.3.2 WAS THE CLAIMANT RELYING ON THE SKILL AND KNOWLEDGE OF THE DEFENDANT?
If there is an imbalance of skill and knowledge relating to the subject matter of the contract as between the claimant and defendant, this will be relevant in deciding whether an oral pre-contractual statement should be treated as a contractual term. The fact that the defendant is in a better position to be able to guarantee the truth of a statement will lend weight to its being regarded as part of the contract. If, on the other hand, it is the claimant who is the expert, then the reverse will be true.
Two cases concerning contracts for the sale of cars conveniently illustrate the two sides of this test. The first case to consider (though the later in time) is Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd.15 The plaintiff had bought a car from the defendants, relying on a pre-contractual statement as to its mileage, which later turned out to be untrue. The Court of Appeal held that the test to be applied was that of whether an intelligent bystander would reasonably infer from what was said or done that the statement was intended to be contractual (that is, ‘detached objectivity’).16 Applying this test, the court came to the conclusion that the statement as to the mileage was a term of the contract, on the basis that the defendant was a car dealer who should be taken to have better knowledge of such matters than the plaintiff, who was not involved in the motor trade. In reaching this decision, the court distinguished the earlier case of Oscar Chess Ltd v Williams.17
Key Case Oscar Chess Ltd v Williams (1957)
Facts: The defendant was a private individual who had sold a car to a garage. Prior to the conclusion of the contract, the defendant had innocently told the garage that the date of the car was 1948, when in fact it had been first registered in 1939. The garage sued for breach of contract, arguing that the statement as to the age of the car was part of the contract.
Held: The Court of Appeal held that, on the basis of the fact that the plaintiffs here had the greater skill and knowledge of such matters, the statement should not be regarded as a term. The intelligent bystander, looking at all the circumstances, would not say that the seller intended to guarantee the age of the car. The seller was in no position to do so, since all he could rely on were the car’s registration documents, and he had no means of determining whether they were accurate. The purchaser, on the other hand, being in the motor trade could, for example, have taken the engine and chassis numbers and checked with the manufacturer.
Other cases where the greater skill and knowledge of the defendant has been relevant in giving contractual status to a pre-contractual statement include Birch v Paramount Estates Ltd18 (developer stating that a house would be as good as the show house), Schawel v Reade19 (owner selling a horse which he stated was ‘perfectly sound’) and Harling v Eddy20 (owner selling a heifer stating that there was ‘nothing wrong’ with her).
It should be noted that a case such as Bentley v Harold Smith, if the facts recurred, would be more likely nowadays to be dealt with as a negligent misrepresentation under s 2(1) of the Misrepresentation Act 1967. The remedy in damages for misrepresentations provided by this section was not, of course, available at the time.21
6.3.3 IN FOCUS: LIABILITY OF PRIVATE SELLERS
It is possible for a private seller of a car to be liable for a false statement as to its age, as is shown by Beale v Taylor22 (discussed below, 6.6.12). Treitel sees this as inconsistent with Oscar Chess v Williams (which was not cited in Beale v Taylor).23 But, as Halson points out, the seller in this case, while not in the motor trade, was in a better position than the buyer to know the age of the car, and in that respect the balance of knowledge was in favour of the seller.24 It is also the case that Beale v Taylor turned on the interpretation and application of s 13 of the Sale of Goods Act 1893 (implied term as to compliance with description). This section was not mentioned in Oscar Chess v Williams, for reasons which are unclear.25
6.3.4 WAS THERE A SIGNIFICANT LAPSE OF TIME BETWEEN THE STATEMENT AND THE CONTRACT?
The courts generally consider that the closer in time that the statement was made to the conclusion of the contract, the more likely it is that it was a matter of importance to the claimant, and should therefore be treated as a contractual term. It is certainly true that if there is no significant gap, the statement may well be treated as being intended to be part of the contract, particularly if the agreement is not put into writing. It is by no means clear, however, that the mere existence of a delay should be regarded as in itself reducing the significance of the statement. Such delay may well have been caused by matters irrelevant to the statement, and the claimant may have felt that having settled the issue which the statement concerned, there was no need to restate it at the time of the contract. Nevertheless, whatever the true significance of the delay, it is undoubtedly the case that as far as the courts are concerned it will weaken the claimant’s case.
An example of the application of this test is the case of Routledge v McKay.26 This concerned the sale of a motorbike. The defendant, who was selling the bike, had told the plaintiff that the date of the bike was 1942. In fact, it dated from 1930. A week elapsed between the defendant’s statement and the making of the contract of sale (which was put into writing). It was held by the Court of Appeal that the defendant’s statement was not a term of the contract. The decision may appear a little harsh, but it may be significant that application of both the other tests outlined above would have gone in favour of the defendant. Thus, the written agreement made no mention of the age of the bike, and neither party had any special skill or knowledge. Both were private individuals, and the defendant in making the statement had innocently relied on false information contained in the bike’s registration document.27
If a week was too long to allow incorporation of the statement, how much shorter would the period have had to be to make the court take a different view of this aspect of Routledge v McKay? Would a gap of more than a day be too long?
As this last case shows, it must be remembered that none of the tests discussed here is automatically conclusive of the issue. All may need to be considered and, if they point in different directions, weighed against each other. The ultimate question is whether the statement, viewed objectively, was intended to form part of the contract. All the other tests are simply matters which may provide guidance to the court in determining this issue.28
This section is concerned with the situation where the answer to the question raised in the previous section is that the statement is not a term of the contract. What remedies, if any, are available to a person who has made a contract in reliance on such a statement? Although it may be argued that discussion of this issue is out of place in this chapter (since, by definition, such statements are not part of the ‘contents of the contract’), it is nevertheless helpful to consider them briefly at this stage, in order to understand fully the importance of deciding whether a statement is part of the contract or not. It is only by considering the consequences of that decision that its significance can be properly appreciated.
There are three possible forms of action that must be considered: the action for misrepresentation, for breach of a collateral contract, and for the tort of negligent misstatement.
The common law and equity recognised two remedies for misrepresentation. Provided that there were no complicating factors, such as the involvement of third party rights, rescission of the contract was the main remedy for all types of misrepresentation. If the misrepresentation was made fraudulently, there was, in addition, the possibility of an action in tort for deceit, which would provide for the recovery of damages.29 Both of these remedies are still available in appropriate cases. In addition, however, there is now the possibility of an action for damages for so-called ‘negligent misrepresentation’ under s 2 of the Misrepresentation Act 1967.
For any of these remedies to be available, the statement must have been a representation in the strict sense. That is, it must have been a statement of existing fact, or of law,30 not a statement of opinion,31 or a promise to act in a particular way in the future. Thus, for example, a statement by a seller of a computer system that a 24-hour service facility will be provided is not a ‘representation’, but a promise. A statement that the system is ideal for a small business may well be a statement of opinion rather than fact.32 However, a statement that the firm has already sold 1,000 similar systems, or that it has a team of six service engineers, are representations which, if untrue, may give the other party a remedy.
6.4.2 COLLATERAL CONTRACT
We have already encountered the concept of the collateral contract as a means of evading the doctrine of privity by bringing apparent third parties into a contractual relationship, as in Shanklin Pier v Detel Products.34 As noted there, however, the collateral contract can also be used between parties who themselves subsequently enter into a main contract. The collateral contract will take the form of one party expressly, or impliedly, saying to the other ‘if you enter into the main contract, I will promise you X’. It can thus provide a remedy for pre-contractual statements that have not been incorporated into the main contract. It has the advantage over the remedies for misrepresentation in that it is not limited to statements of existing fact. A promise to act in a particular way is clearly covered. Continuing the computer contract example used above, a statement that ‘we will answer all service calls within six hours’ could not be a misrepresentation, but could found an action for breach of a collateral contract. A statement of fact, or even opinion, may also give rise to a collateral contract, if it can be said that the maker of the statement was guaranteeing its truth.
An example of the use of a collateral contract in a two-party situation is City of Westminster Properties v Mudd.35 A tenant had been in the practice of sleeping in the shop that he rented. When the lease was renewed, the landlord tried to insert a clause stating that the premises should not be used for lodging, dwelling or sleeping. The tenant objected, but was assured orally that if he signed the lease, he would be allowed to sleep there. In fact, probably due to an oversight, the new clause was omitted, but a provision containing an obligation only to use the premises for the purposes of trade remained. The landlord subsequently tried to rely on this clause to forfeit the lease, claiming that the tenant was in breach of it through sleeping on the premises. It was held that the tenant could rely on a collateral contract giving him the right to sleep on the premises which, in effect, overrode the clause in the lease itself.
Key Case Esso Petroleum Co Ltd v Mardon (1976)36
Facts: A representative of Esso had given a prospective tenant of a petrol station an estimate of the potential throughput, which was put at 200,000 gallons a year. This failed to take account of the fact that the local planning authority had required the petrol pumps to be sited on a side street, invisible from the main road. The tenant was dubious as to the accuracy of the estimate, but accepted it as being based on Esso’s superior knowledge of the petrol retailing business. He entered into a lease, but the throughput never exceeded 78,000 gallons a year.
Held: The Court of Appeal held that the tenant was entitled to recover damages from Esso on the basis of a collateral contract. Although the estimate was an expression of opinion, rather than a statement of fact, or a promise as to the throughput which would be achieved, it contained the implied promise that it was made with reasonable care and skill. As Lord Denning commented:
They [Esso] knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr Mardon to make a forecast. It seems to me that if such a person makes a forecast – intending that the other should act on it and he does act on it – it can well be interpreted as a warranty that the forecast is sound and reliable in the sense that they made it with reasonable care and skill.
The consideration for the promise that the estimate was made with due care and skill was Mr Mardon’s agreement to enter into the lease. A contract collateral to the lease was thus created, and Mr Mardon was entitled to recover damages for Esso’s breach of this contract.
6.4.3 LIMITATIONS OF THE ‘COLLATERAL CONTRACT’
As will be seen from these examples, the collateral contract is a very flexible device. Its disadvantage, compared to the action for misrepresentation, is that it will only provide a remedy in damages, and will not allow the claimant the possibility of rescinding the main contract. Moreover, the level of damages that can be awarded is more restricted than in the case of actions for deceit, or under s 2(1) of the Misrepresentation Act 1967.37
6.4.4 NEGLIGENT MISSTATEMENT
In 1963, the House of Lords confirmed that the tortious action for negligence could provide a remedy for negligent misstatements which have resulted in purely economic loss.38 The development of the law in this area over the past 50 years or so has been complicated, as the courts have tried to decide exactly when a duty of care as regards such statements can be said to arise. The subsequent trend, as shown by cases such as Caparo Industries plc v Dickman,39 has been to limit strictly the number of ‘special relationships’ which can give rise to such a duty, though this has been softened to some extent by the later decisions in Henderson v Merrett Syndicates Ltd40 and White v Jones.41 There is little doubt, however, that a duty of this kind may arise between parties who subsequently enter into a contract. The possibility was recognised in Esso v Mardon, for example. In practice, however, the existence of the remedies under s 2(1) of the Misrepresentation Act 1967 means that it is not very likely to be needed in this situation.42 The action under the 1967 Act has the advantage that the burden of proof as regards negligence is on the defendant (who effectively has to disprove it), and that more extensive damages are available. The only situation where it might be necessary for a party to a contract to look to the common law negligence action is where the statement is not a representation in the strict sense, and it is also impossible to construct a collateral contract.43
6.4.5 CONCLUSION ON PRE-CONTRACTUAL STATEMENTS
As we have seen, there is a variety of actions that may be available in relation to pre-contractual statements. There is nothing to stop a claimant relying on more than one, as was pointed out by Lord Denning in Esso v Mardon.44 In an unusually frank (for a judge) recognition of the way in which lawyers manipulate legal concepts to achieve their desired result, he explained how, at a time when no damages were available for a non-fraudulent misrepresentation, other alternatives would be sought:45
In order to escape from that rule, the pleader used to allege – I often did it myself – that the misrepresentation was fraudulent, or alternatively a collateral warranty. At the trial we nearly always succeeded on collateral warranty. We had to reckon, of course, with the dictum of Lord Moulton that ‘such collateral contracts must from their nature be very rare’.46 But more often than not the court elevated the innocent misrepresentation into a collateral warranty; and thereby did justice … Besides that experience, there have been many cases since I have sat in this court where we have readily held a representation … to be a warranty sounding in damages.
Nowadays, since damages for negligent misrepresentations are now available, the decision as to which action will be the most appropriate to press will depend mainly on the type of statement (is it a statement of fact?) and on the remedy which is being sought (is rescission of the contract required, or will damages be adequate?). If the statement cannot be constructed as being of fact, then collateral contract may be the best remedy to pursue. On the other hand, if rescission rather than damages is what is important, the contractual action for misrepresentation is the only one which will provide this.
In this section, we are concerned with terms that have without doubt been put forward by one or other party as a term of the agreement. There may be disputes, however, as to whether the clause has been incorporated into the contract, as to its proper meaning, and as to the consequences of breaking it. In dealing with all these questions, the approach of the courts will again be professed to be that they are trying to determine the parties’ intention, from an objective viewpoint. The focus under classical theory is on the time of the original agreement, with later developments being ignored.47
We have already discussed the rules which the courts adopt to decide whether pre-contractual statements should be regarded as having been incorporated into a contract. The situation under consideration here is slightly different, and will generally arise in relation to written contracts in a standard form which have not been signed. One party may object that a particular clause should not be regarded as being included in the contract, because they were unaware of it for some reason, and would have objected to it. The rules that operate in this area have mainly developed in relation to the incorporation of exclusion clauses, and detailed discussion of them will be left until Chapter 7. In appropriate cases, they can apply to other types of clause, however, as is shown by the case of Interfoto Picture Library v Stiletto Visual Programmes.48
Key Case Interfoto Picture Library v Stiletto Visual Programmes (1988)
Facts: The defendants were an advertising agency. They needed some photographs for a presentation. On 5 March 1984, they contacted the plaintiffs, who ran a library of photographic transparencies, to see if they might have anything suitable. The plaintiffs sent round a packet of 47 transparencies, together with a delivery note. The transparencies were, however, apparently overlooked and not used. They were eventually returned on 2 April, that is, nearly a month after they had been received. The plaintiffs then claimed the sum of £3,783 from the defendants as a ‘holding charge’ for the transparencies. This was calculated in accordance with the terms laid down in the delivery note, which stated that, in relation to transparencies not returned within 14 days of receipt, a charge of £5 per day plus VAT would be made in respect of each transparency. The issue before the court was whether the terms of the delivery note formed part of a contract between the parties and, if so, whether the plaintiffs could enforce these terms against the defendants.
Held: The Court of Appeal held that the clause could not be enforced. It did so by reference to the case law on exclusion clauses and when they are deemed to have been incorporated into a contract. In particular, the court relied on Parker v South Eastern Railway Co,49 and Thornton v Shoe Lane Parking.50 Parker established the principle that, in order to rely on an exclusion clause in an unsigned contract, the defendant had to have taken reasonable steps to bring it to the attention of the claimant. Thornton added the gloss that the more unusual and onerous the clause, the more the defendant had to do to draw it to the claimant’s attention. The court saw no reason why this approach should not apply to the case before it. The clause was particularly, and unusually, onerous in its effect. The plaintiffs had done nothing to draw it to the defendants’ attention. It should be regarded as not having been incorporated into the contract.
6.5.2 IN FOCUS: DO BUSINESSES NEED PROTECTING?
The approach taken in the Interfoto case is an unusual one in relation to a commercial agreement. This aspect of the rule of incorporation has tended to be used mainly as a means of protecting consumers, particularly in relation to exclusion clauses. Where parties are contracting at arm’s length, in a business context, it would more commonly be the case that the court would expect each party to take care over the obligations to which it was committing itself. If they agree to unfavourable terms, then that is their own fault. It is perhaps significant that the Interfoto decision has not so far led to many similar reported decisions. In Kaye v Nu Skin UK Ltd,51 the High Court, dealing with a preliminary issue, held that the Interfoto approach could be relevant in a commercial contract between an individual, inexperienced business person and a franchise company, which contained a provision requiring mediation of any dispute to take place in Utah, USA. On the other hand, in a case involving the loss of transparencies, Photolibrary Group Ltd v Burda Senator Verlag Gmbh,52 the Interfoto case was distinguished on the basis that there had been a course of dealing between the parties, and the terms used were ones which were common in the trade. In AEG (UK) Ltd v Logic Resource Ltd53 a similar approach to that taken in Interfoto was adopted, but the majority Court of Appeal decision is strictly obiter on this point since it found that the clause was also unreasonable under the statutory test contained in the Unfair Contract Terms Act 1977.54 Indeed, given the statutory control of exclusion and other clauses by this Act and the Unfair Terms in Consumer Contracts Regulations 1999,55 there would seem to be little need to develop further a restrictive rule for incorporation under the common law.56
6.5.3 A MORE RELAXED APPROACH
A move towards a relaxed approach to incorporation is exemplified by the Court of Appeal decision in O’Brien v Mirror Group Newspapers,57 which was concerned with a consumer contract. The claim concerned a ‘scratch card’ game operated by the defendants, Mirror Newspapers. The claimant had obtained one of the scratch cards from a newspaper, from which it appeared that he would win £50,000 if this was the prize on a particular day, which could be discovered by ringing a particular telephone number. He rang the number and was told that the prize amount was £50,000, so he thought that he had won that amount. It then transpired that, because of an error, a large number of winning cards had been produced. The defendants therefore relied on Rule 5 of the rules applying to the competition, which they claimed allowed them to draw lots between all the holders of the ‘winning’ cards to decide who won the £50,000. The claimant was not successful in this draw, and sued, claiming that Rule 5 had not been incorporated into his contract with the defendants. The rules of the competition had been published in a number of newspapers, but did not appear every day. The Sunday paper from which the claimant had obtained his card stated ‘FULL RULES AND HOW TO CLAIM SEE DAILY MIRROR’. The paper from which he obtained the number to ring to see if his card had ‘won’ stated ‘Normal Mirror Group rules apply’. The claimant argued that this was insufficient for the rules to be incorporated into his contract.
The Court of Appeal agreed with the trial judge that a contract was made by an offer contained in the newspaper on the day the claimant telephoned the defendants, which the claimant accepted by making the telephone call. The trial judge thought that the claimant, who admitted buying a number of the relevant newspapers, must have seen the rules, or at least have been aware that there were rules applying to the competition. He did not feel that Rule 5 was sufficiently unusual or onerous that the defendants ought to have done more to bring it to the attention of those who might play the scratch card game. The Court of Appeal agreed. As Hale LJ put it:58
The offer and therefore the contract clearly incorporated the term ‘Normal Mirror Group rules apply’. The words were there to be read and it makes no difference whether or not the claimant actually read or paid attention to them.
The question, therefore, is whether those words, in the circumstances, were enough to incorporate the Rules, including Rule 5, into the contract.
Applying the approach taken in the Interfoto case, the test was whether the rules could be said to have been fairly and reasonably brought to the notice of the claimant. This depends on the nature of the contract and the nature of the term. In the view of Hale LJ, although Rule 5 did turn an apparent winner into a loser, it could not by any normal use of language be called ‘onerous’ or ‘outlandish’. It did not impose any extra burden upon the claimant, unlike the clause in Interfoto. It did not seek to absolve the defendant from liability for personal injuries negligently caused, unlike the clause in Thornton v Shoe Lane Parking; it merely deprived the claimant of a windfall for which he had done very little in return. He bought two newspapers and made a call to a premium rate number, which would have cost him a matter of pennies, not pounds. Nor was there any evidence that this type of rule was ‘unusual’ in this sort of competition. In any event, as Hale LJ concluded:59
The words ‘onerous or unusual’ are not terms of art. They are simply one way of putting the general proposition that reasonable steps must be taken to draw the particular term in question to the notice of those who are to be bound by it and that more is required in relation to certain terms than to others depending on their effect. In the particular context of this particular game, I consider that the defendants did just enough to bring the Rules to the claimant’s attention. There was a clear reference to rules on the face of the card he used. There was a clear reference to rules in the paper containing the offer of a telephone prize. There was evidence that those rules could be discovered either from the newspaper offices or from back issues of the paper. The claimant had been able to discover them when the problem arose.
Although the court had sympathy with the claimant, he was bound by the terms of the competition, and his claim failed. It would seem then that even in consumer contracts, there is no necessary requirement to take special steps to draw attention to a clause which may have the effect of disappointing the expectations of the unwary contractor.
What do you think the position would be if the consumer, unlike Mr O’Brien, had paid a significant sum for what he or she was expecting to obtain under the contract? Would the courts adopt a different approach?
Even where there is no dispute as to whether a clause is incorporated, the parties may disagree as to what it was intended to mean. It will be necessary to try to construe the clause in order to give effect to it. The courts will adopt the approach of trying to assess objectively what the parties must be taken to have intended. If the contract is in the form of a written document, this will generally be regarded as very strong evidence of the parties’ intentions. The ‘parol evidence rule’ will apply, with the effect that it will not normally be open to one of the parties to argue that some part of the written document should be disregarded, or interpreted in a way which is not consistent with its most obvious meaning. The Law Commission has doubted whether there is such a rule of law as the ‘parol evidence rule’ – regarding it as being essentially a circular statement, to the effect that when it is proved that a written document was intended to set out all the express terms of an agreement, other evidence of what was intended will not be admissible.60 Nevertheless, as the Commission itself recognised, since the ‘rule’ has regularly been referred to by writers and judges, it provides a convenient shorthand for the approach to constructing contracts to which it applies.61 The rule, whatever its precise status, thus makes it very important for the parties to ensure that any written document forming part of the contract is clear and explicit as to the obligations which are being imposed on each side. The parol evidence rule is not, however, unchallengeable, and there are certain established exceptions to it.
Exceptions to the parol evidence rule include:
|Where a word or phrase contained in the written document is ambiguous, other evidence may be given as to what was actually intended, as in Robertson v Jackson.62 The phrase in question was ‘turn to deliver’ in relation to the unloading of goods at a particular port. The contract did not on its face give any indication of when the ship’s ‘turn to deliver’ would arise. The court was prepared to allow oral evidence as to the custom applying in that port. This exception must now be considered in the light of the overall approach to construction taken in recent cases, such as Investors Compensation Scheme Ltd v West Bromwich Building Society,63 discussed in the next section.|
|(b)||Written agreement incomplete|
|If either or both of the parties can show that the written agreement was not intended to contain all the terms of the contract, then oral or other extrinsic evidence may be used to fill it out. In Allen v Pink,64 for example, the written document relating to the sale of a horse was little more than a receipt. It stated the price and the names of the parties, but contained no other terms. In the circumstances, the court was prepared to allow evidence of an oral promise as to the horse’s behaviour in harness. This case was fairly clear. It will be more difficult where the written agreement contains some terms. The court will have to consider objectively whether it appears to be complete, or whether it is more likely that the parties intended it to be supplemented by other obligations. The insertion of a clause to the effect that ‘this document contains all the terms of the contract’ will presumably make it difficult to rebut the presumption that it is complete, and that any other evidence of additional terms should be excluded.65|
|Sometimes, a particular word or phrase is used in a particular trade, market or locality, in a way which does not accord with its obvious meaning. In Smith v Wilson,66 evidence was allowed to establish a local custom to the effect that the phrase ‘1,000 rabbits’ meant ‘1,200 rabbits’. Custom may also be used to fill out an aspect of the contract on which the written document is silent. In Hutton v Warren,67 a custom as to allowances to be given to an outgoing tenant for seeds and labour used in the last year of the tenancy was held to be incorporated into a lease which contained no such provision. Parke B commented that:68|
It has long been settled that, in commercial transactions, extrinsic evidence of custom and usage is admissible to annex incidents to written contracts in matters with respect to which they are silent.
This use of custom overlaps with the use of custom to imply terms; this is discussed further below. Custom may not be used, however, where it is clearly contradicted by the terms of the contract. Where, for example, a charter provided that the expenses of discharging a cargo should be borne by the charterer, it was not possible to override this by showing a custom that the expenses should be borne by the owner of the ship.69
|(d)||Starting or finishing date|
|Extrinsic evidence may be used to establish the date on which a contract is intended to start to operate. In Pym v Campbell,70 evidence was allowed as to an oral provision that the contract should not start to operate prior to the approval of a third party.|