Chapter 4 & 7: Contents of a – exclusion clauses and implied terms Terms that exclude liability - It is common for to contain terms, variously called exclusion, exemption or limitation clauses, that operate exclusively to the benefit of only one party. The effect of these clauses is to: o exclude all liability for breach; o limit liability for or other wrongful conduct; o exempt a party from the obligation to perform as promised; or o limit the redress available to the other party where there is a failure to perform (usually by specifying a limit to the amount of damages available). - These terms are commonly utilised in the following contexts: o A bus company restricts liability for injury to passengers; o A dry-cleaner excludes liability for damage to clothing: Causer v Browne [1952] VLR 1; o An insurance company excludes liability for death arising from dangerous sports; and o A manufacturer excluding liability for defective products. - For a term excluding liability to be given legal effect, it must be: o clear and precise in its wording and the aspects of liability that are being excluded or limited; and o properly brought to the attention of the other party prior to them entering the agreement (so as to be incorporated into it) o Olley v Marlborough Ltd [1949] 1 All ER 304 . Facts:  Couple booked into hotel room.  Furs and jewellery were stolen from the room during their stay.  Couple wanted compensation from the hotel.  Hotel denied liability, directing the couple’s attention to an exclusion clause detailed on a sign on the back of the couple’s room door – ‘The hotel would not be responsible for articles lost or stolen’. . Issue:  Had the exclusion clause behind the door been incorporated into the contract between the couple and the hotel? . Decision:  No. It was only brought to the attention of the couple after they had checked in. For the clause to be effective, it needed to be brought to their attention at that time when the contract was formed. o Note: A course of prior dealing would be relevant in determining whether a term excluding liability has been brought to the attention of the other party. - An exclusion clause that has been properly incorporated into the contract will be construed according to the contract as a whole and the language used. - But where the meaning of an exclusion clause is ambiguous, the court will interpret the exclusion clause against the interests of the party who is seeking to rely on it (). o Any doubt and they will be on the underdogs side but not it it’s been brought to your attention and is clear - An exclusion clause can be interpreted against the interests of the preferred party by: o Interpreting ambiguous words narrowly; and o Not giving the clause scope to apply to events which fall outside the ‘four corners’ of the contract. o Sydney City Council v West (1965) 114 CLR 481 . Facts:  West parked car in Sydney council car park, obtaining a ticket from machine at entrance.  Car was gone when he returned.  Third party had approached parking attendant claiming to have lost ticket.  Attendant provided duplicate ticket to third party without doing any checks. Third party then proceeded to take car.  West sued Council for damages.  Council denied liability on the basis of express statement on ticket – ‘The Council does not accept any responsibility for the loss or damage to any vehicle…however such loss damage or injury may arise or be caused’. . Issue:  Did the statement on the ticket effectively exclude liability in these circumstances? . Decision:  No. The exclusion clause had become a term of the contract, but properly interpreted it did not apply to this situation where the parking attendant had allowed for an unauthorised delivery of the car. Agreed terms and terms implied by - Terms can become part of a contract either: o by the parties expressly agreeing that they be included (covered last week); o being implied by fact (covered this week); or o by the operation of the law (covered this week). Implied terms - Not expressed but intended to be part of the contract - Terms implied by fact and Terms implied by law - The do not easily recognise such terms as they don’t want to be seen to interfere with the contract between the parties Terms implied by fact - For a term to be implied by fact it must be obvious from the circumstances that the parties must have intended to include such a term as part of their agreement. - The court applies the officious bystander test to determine if the requisite intention is present. - The officious bystander test: o “What would the parties have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their contract?” - If the court can infer that the parties would have answered ‘of course’, the necessary intention is established. Terms implied by fact – business efficacy - The courts are willing to imply terms in fact to give a contract commercial meaning. Without this, the contract is hard to give effect to. - For this to occur, there must be gaps in the terms that have been expressly agreed by the parties. - Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

o o For a term to be implied by fact: . The suggested term must be reasonable and equitable . It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it . It must be so obvious that “it goes without saying” . It must be capable of clear expression . It must not contradict any express term of the contract Terms implied by fact – oral contracts - In informal contracts (oral contracts) where the terms have not been spelt out, terms may be implied by reference to the parties intentions where it gives effectiveness to a contract in the circumstances of the agreement. Terms implied by legislation - Legislation, particularly consumer protection legislation, may require certain matters be specified in the contract, or may impose obligations on one or both parties, irrespective of their agreement. - Consumer legislation implies terms into contracts for sale of goods relating to: o title; o correspondence with description; o merchantable quality; o fitness for purpose; and o correspondence with sample. - Note: o Sale of Goods Act 1895 (WA) regulates ‘business to business’ contracts for the sale of goods. o Competition and Consumer Act 2010 (Cth) adds statutory guarantees to ‘business to consumer’ contracts. o Which legislation regulates the sale of goods? - The Sale of Goods Act 1895 (WA) contains many ‘residual’ provisions for commonly occurring gaps in sale contracts. For example: o When, where and how delivery, and payment should be made; o When ownership in the goods passes to the buyer; and o Imply terms into a contract making the seller liable for the quality of the goods. Sale of Goods Act 1895 (WA) - Statutory implied terms regarding the quality of goods sold. o Section 13 – Sale by description; o Section 14 – Implied conditions as to quality or fitness; and o Section 15 – Sale by sample. Sales by description (s13) - “Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description…” - Goods are sold by description when they are described as belonging to a particular class or type of good. - NOTE: This section does not make any implied guarantees as to the quality of goods. Varley v Whipp [1900] 1 QB 513

- - - Court said that the buyer could refuse to buy the machine Implied condition as to quality and fitness (s14(2)) - “Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose…” - Under section s14(2) it becomes a condition of the contract that the seller will supply goods in a state reasonably fit for the buyer’s purpose. - Otherwise the buyer may treat the contract as terminated and reject the goods. Implied condition as to quality and fitness (s14(3)) - “Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality. Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed.” - The seller is obliged to deliver goods that are at least of merchantable quality, unless the buyer has examined the goods in a way that ought to have revealed the defects complained of.

- David Jones Ltd v Willis [1933] HCA 47; (1934) 52 CLR 110 o Facts: . Willis went to the shoe section in David Jones. . Said to attendant that she wanted comfortable walking shoes. . She was shown some potential options by the attendant. . Willis inspected three pairs of these shoes, tried one of the pairs on and bought them. . The third time she wore them one of the heels came off when she was walking down some stairs and she fell and broke her leg. . She sued David Jones for damages on the basis of breach of a contractual warranty (to supply shoes of a merchantable quality). o Issue: . Was it a term of the contract that the shoes be of merchantable quality, and were the shoes supplied merchantable or not? o Decision: . It was a term of the contract that the shoes be of merchantable quality, and the shoes supplied were not of merchantable quality. Sale by sample (s15) 1. A is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. 2. In the case of a contract for sale by sample — a) there is an implied condition that the bulk shall correspond with the sample in quality; b) there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample … - Under section 15 it becomes a condition of the contract that the bulk of the goods must correspond with the sample. - The buyer must have reasonable opportunity after delivery, to compare the bulk with the sample. Exclusion of implied terms - Statutory implied terms regarding the quality of goods sold. o Section 13 – Sale by description; o Section 14 – Implied conditions as to quality or fitness; and o Section 15 – Sale by sample. - Section 54 – Exclusion of implied terms and conditions - “Where any right, duty, or liability would arise under a contract of sale, by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage be such as to bind both parties to the contract.” - Sections are under sales of goods act not consumer act Terms put into a contract by operation of law - It is impossible for contracting parties to negotiate every detail of a contract or foresee every event that could impact the contract. Therefore, most contracts have some gaps. - The law operates to fill these gaps with terms that clarify the contractual obligations of the parties and assist in the contract’s functioning. - Terms put into all contracts by the ; - Terms put into particular types of contract by the common law; and - Terms put into particular types of contract by statute (e.g. Sale of Goods Act 1895 (WA)). Terms implied into all contracts - The following terms (referred to as ‘universal terms’) are put into all contracts by the common law: o To cooperate and do what is reasonable; and o To act in accordance with . - 1. To cooperate and do what is reasonable so that both parties get the benefit of the contract. o Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 . Facts:  Perri agreed to buy a property from Coolangatta Investments (CI).  Performance was subject to condition that Perri had to sell another property he owned.  Perri couldn’t find purchaser for that property because he was asking for too much money.  When Perri could not complete sale with CI, they terminated the contract. . Issue:  Had CI validly terminated further performance of their contract with Perri? . Decision:  Yes. Perri did not do all that was reasonable in the circumstances to sell his other property. - 2. To act in accordance with good faith – i.e. use contractual powers honestly and reasonably. o Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 . Facts:  Airservices Australia (AA) invited two parties to tender for a project via letter, which set out the selection criteria and the tender process.  Hughes lodged a tender and AA’s tender evaluation committee recommended that Hughes be awarded the contract.  AA didn’t follow this recommendation and awarded the contract to the other party.  Hughes sued alleging that AA had not followed the tender process and had therefore breached a term in the contract of tender. . Issue:  Was AA under a duty to conduct the tender process fairly (due to an implied term of good faith or fair dealing)? . Decision:  Yes. By not conducting the tender process in a fair manner, AA had breached their legal obligation to act in good faith towards Hughes. o Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 Terms put by law into specific kinds of contracts - The common law implies generic terms into particular types of contract e.g. a sale of land; a lease; an insurance contract; a doctor and patient contract. - Breen v Williams [1995] HCA 63; (1996) 186 CLR 71 o Facts: . Ms Breen had an operation to insert silicone breast implants. . Some problems later developed, and she consulted with Dr Williams about the complications. . Another doctor conducted the surgery to remove Ms Breen’s implants. . Ms Breen wanted to join a lawsuit against the implant manufacturers in the US. . She sought access to her medical records from Dr Williams, but he refused. o Issue: . Was there implied terms of the contract between patient and doctor that the patient has a right of access to their medical records, and that the doctor must act in the best interests of the patient by providing them with these records? o Decision: . No. Certain terms are implied by fact to reflect what the parties intended e.g. doctor would advise and treat the patient with reasonable skill and care; the patient will render payment to the doctor etc., but this did not extend to the provision of medical records to the patient.

Business Law Exam Case Studies Topic 5 – Exclusion clauses and implied terms Causer v Browne [1952] VLR 1 Terms commonly used e.g. dry cleaners excluding liability for damage to clothing

Facts: Causer took his wife's dress to Browne for dry cleaning. When he gave the dress to Browne, Causer was handed a 'docket' on which the following statement was printed: 'No responsibility is accepted for loss or injury to articles through any cause whatsoever'. Causer did not read what was written on the docket and the statement was not specifically drawn to his attention. During dry cleaning the dress was stained. Causer claimed damages from Browne to compensate for the ruined dress. Browne defended the claim, relying on the statement printed on the docket.

Issue: Had the statement on the docket that excluded Browne's liability become a term of the contract?

Decision: In the circumstances, the statement had not become a term of the contract.

Reason: The document handed to Causer did not appear to be a contractual document, or a document that was likely to contain contractual terms. It was reasonable in the circumstances for Causer to assume that the document was only an identifying docket which he would have to produce to collect the goods after cleaning. It could not be inferred, therefore, that Causer was agreeing to exempt Browne from liability for . The result would have been different if Causer's attention had been drawn to the fact that the docket contained contractual terms.

Olley v Marlborough Court Ltd [1949] 1 All ER 304 For a term excluding liability to be given legal effect, it must be clear and precise and brought to the attention of the party

Facts:

• Couple booked into hotel room. • Furs and jewellery were stolen from the room during their stay. • Couple wanted compensation from the hotel. • Hotel denied liability, directing the couple’s attention to an exclusion clause detailed on a sign on the back of the couple's room door - 'The hotel would not be responsible for articles lost or stolen'.

Issue:

• Had the exclusion clause behind the door been incorporated into the contract between the couple and the hotel?

Decision:

• No. It was only brought to the attention of the couple after they had checked in. For the clause to be effective, it needed to be brought to their attention at that time when the contract was formed.

Sydney City Council v West (1965) 114 CLR 481 Exclusion clause can be interpreted against the interest of the preferred party

Facts:

• West parked car in Sydney council car park, obtaining a ticket from machine at entrance. • Car was gone when he returned. • Third party had approached parking attendant claiming to have lost ticket. • Attendant provided duplicate ticket to third party without doing any checks. Third party then proceeded to take car. • West sued Council for damages. • Council denied liability on the basis of express statement on ticket - 'The Council does not accept any responsibility for the loss or damage to any vehicle...however such loss damage or injury may arise or be caused'.

Issue:

• Did the statement on the ticket effectively exclude liability in these circumstances?

Decision:

• No. The exclusion clause had become a term of the contract, but properly interpreted it did not apply to this situation where the parking attendant had allowed for an unauthorised delivery of the car.

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Terms implied by fact – business efficacy, used to give a contract commercial meaning, must be gaps in the terms already agreed

Facts: Codelfa Constructions contracted with the State Rail Authority of New South Wales to carry out construction work on the Eastern Suburbs railway line in Sydney. The work involved considerable excavation and blasting, as well as the construction of tunnels. This work was in residential areas and created considerable noise and dust. The contract price and time allowed for completion of the work were determined on the understanding that Codelfa would be able to carry out the work continuously because it would enjoy the authority’s statutory immunity from injunction to restrain a nuisance. Local residents sought an injunction and it was held that the authority’s statutory immunity from injunction did not extend to Codelfa. An injunction to restrain nuisance was granted and Codelfa was restrained from working between 10pm and 6 am each day. This mean that the completion of the contract was delayed.

Issue: Should the Court imply a term to give business efficacy to the contract? Would a term that the State Rail Authority of New South Wales be required to pay the extra cost resulting from the extra time taken meet the test set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363?

Decision: The High Court held that it was not possible to imply any such term because it was not satisfied that it went without saying that the parties would have agreed to the term if they had put their minds to the possibility of an injunction being granted, and it was not necessary to give business efficacy to the contract. Mason J made the following comments concerning the courts’ role in implying contractual terms:

- The implication of terms is an exercise in construction; it just not a question of the content of the contract but one of its meaning. - The problem is caused by a deficiency in the expression of the contract; the court is asked to give meaning not to a term the parties have actually agreed on but on one it is presumed they would have agreed on if they had turned their minds to the circumstances in which they now find themselves; the objective framework of facts at the time of formation of the contract and the parties’ presumed intention at that time must be examined - It is not enough that it would be reasonable to imply the term; it must be clearly necessary and the test to be applied is that set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363

Breen v Williams [1995] HCA 63; (1996) 186 CLR 71 Terms put by law into specific kinds of contracts

Facts:

• Ms Breen had an operation to insert silicone breast implants. • Some problems later developed, and she consulted with Dr Williams about the complications. • Another doctor conducted the surgery to remove Ms Breen’s implants. • Ms Breen wanted to join a lawsuit against the implant manufacturers in the US. • She sought access to her medical records from Dr Williams, but he refused.

Issue:

• Was there implied terms of the contract between patient and doctor that the patient has a right of access to their medical records, and that the doctor must act in the best interests of the patient by providing them with these records?

Decision:

• No. Certain terms are implied by fact to reflect what the parties intended e.g. doctor would advise and treat the patient with reasonable skill and care; the patient will render payment to the doctor etc., but this did not extend to the provision of medical records to the patient. Topic 6 – Performance and breach of contract Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Determining the required performance – court decides

Facts: Hide & Skin were exporters of animal products. The buyers of these products often paid for them up to six months after purchase and to finance their ongoing business, Hide & Skin needed a third party to provide advance payments for goods sold but not yet paid for. Oceanic arranged the necessary financial facility for a period of two years. The facility was subject to termination on six months’ notice. When Oceanic gave notice to terminate the facility, they argued that they were not obliged to give advance payments to Hide & Skins for money that would only be repaid by the purchasers after the facility had ended. Hide & Skins argued that they should be given advances right up to the end of the period of notice, even if repayment by the purchasers took place up to six months thereafter.

Issue: Whose interpretation of the agreement was correct?

Decision: The agreement had the meaning suggested by Hide & Skins