WEEK 2 – CONSTRUING THE TERMS (PAROL RULE AND INTERPRETING TERMS)

Identifying a

Step 1: Is the pre-contractual statement promissory? In order for it to be established as a pre-contractual statement it must be promissory in character with an intention from the maker of the statement to make a binding promise, to guarantee or warrant the truth of the statement (Oscar Chess; JJ Savage; Banque Brussels v ANI). The statement must ‘be promissory and not merely representational’, expressed as ‘an assurance, guarantee, promise’ in that it is distinguished from mere puff, sales hype or representational (JJ Savage). You may have regard to the reasonable business person in the position of the parties (Mount Bruce Mining)

Step 2: Is the evidence of the pre-contractual statement admissible? Evidence of pre-contractual statements are admissible if the is oral or part oral and part written. However, if the contract is wholly in writing then the applies.

Step 3: When does the Parol Evidence Rule apply? The parol evidence rule limits extrinsic evidence outside of the contract that may be brought to subtract from, add to, contradict or vary the terms of the written contract when the contract is wholly in writing and prevents extrinsic evidence that might explain/construe the meaning of the terms (SRA v Heath Outdoors). It prevents extrinsic evidence or prior negotiations, parties actual subjective intentions and subsequent conduct of parties. The rule aims to preserve the finality of written instruments and the prevent the ‘uncertain testimony of slippery memory’ (Codelfa).

Ways around the Parol Evidence Rule

Step 1: Is the contract wholly in writing? did the person making the statement have the authority to change the terms in the contract?

Step 2: does the the pre contractual statement provide the foundation for an ? Estoppel, as it is in equity and not a contractual right, the parol evidence rule does not apply (Saleh v Romanous). “If the estoppel…is equitable…the common parol evidence rule will not impede its proper operation…equity would not permit an entire agreement clause to stultify the operation of its doctrines” (Franklins Pty Ltd v Metcash Trading Ltd).

Step 3: Has the pre contractual statement actually formed the basis of a second contract separate to the written contract ()?

Collateral Contract

A collateral contract is when one party makes a promise, connected to but independent, of a main contract and, as for that promise the other party agrees to enter into the main contract. In determining whether it is a collateral contract you must consider the following:

Step 1: Was the collateral statement promissory and intended to induce entry into the contract? (JJ Savage; Sheppard) The collateral statement must be promissory in character with an intention attributed to the maker of the statement to make a binding promise, to guarantee or warrant the truth of the statement (Oscar Chess; JJ Savage; Banque Brussels v ANI). The statement must ‘be promissory and not merely representational’, expressed as ‘an assurance, guarantee, promise’ in that it is distinguished from mere puff, sales hype or representational (JJ Savage).

§ the party in effect has said ‘I guarantee it’, ‘I warrant it’, ‘I give my word on it’, ‘I bind myself to it’ (Oscar Chess).

Step 2: is the collateral contract consistent with the terms of the main contract? (Hoyts v Spencer) The collateral contract must be consistent with the terms of the main contract, the collateral contract “being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it” (Hoyts v Spencer).

Step 3: Was entry into the main contract given in response to and exchange for the collateral promise? (Australian Woollen Mills) Entry into the main contract must be given in response to and exchange for the collateral promise (Australian Woollen Mills)

Interpreting the express terms of a contract

Step 1: What is the objective approach to interpretation? “a contract of which there can be more than one possible meaning, is not therefore void for uncertainty” (Upper Hunter). The aims to give effect to the parties intentions which is determined objectively (Mount Bruce Mining). The subjective beliefs of the parties are generally irrelevant (Brambles). As such, in determining the meaning of the terms of a contract “it is necessary to ask what a reasonable (business) person in the position of the parties would have understood the terms to mean” (Mount Bruce Mining). The meaning of the words used by the parties are assessed by reference to: the natural and ordinary meaning, any other relevant provisions of the contract, the overall purpose of the contract, the (admissible) surrounding circumstances, commercial common sense but degrading subjective parties intentions.

Step 2: What does the court consider in terms of the “reasonable person”? The court will consider the following in relation to the “reasonable person”: (a) Natural and ordinary meaning of the words (Darlington) (b) Considered in light of the contract as a whole, giving due weight to the context in which they appear (Darlington) (c) The purpose of the contract (Mount Bruce Mining) (d) Surrounding circumstances – the objective framework of facts or circumstances known to both parties or at the date of contract (if they are admissible) (Mount Bruce Mining) (e) Commercial common sense (Mount Bruce Mining) (f) Disregard evidence of parties statements and actions reflecting their actual subjective intentions (Mount Bruce Mining)

Step 3: What if ambiguity arises? Whilst there is continuing uncertainty in Australia as to the position taken on the admissibility of surrounding circumstances where there is ambiguity, the current position most likely to be taken is the ‘true rule’ in that evidence is admissible only where language is ‘ambiguous or susceptible of more than one meaning’ (Codelfa; Royal Botanic Gardens; Western Exports; Mount Bruce).

Exclusion Clauses Contracting parties may allocate risks through exclusion clauses including excluding liability for (Darlington), limit liability e.g. to a fixed sum (Darlington, make liability subject to satisfying certain preconditions e.g. sue within a year (The NY Star) or modify principle obligations that would normally arise in a contract of that type (L’Estrange).

Step 1: Are there any legislative restrictions? • s 64 Australian Consumer Law 2010 (Cth) • Unfair Contract Terms Law (UCTL) – Part 2-3 Australian Consumer Law

Step 2: Apply the approach Common law approach Where not regulated by legislation, three questions need to be asked in determining whether an exclusion clause applies to reduce or exclude a party’s liability under a contract: 1. Is the exclusion clause a term of the contract? 2. Is the person seeking to rely on the exclusion clause a party to the contract? 3. As a matter of construction, does the exclusion clause exclude or limit the liability that has arisen?

Step 3: What if ambiguity arises? Exclusion clauses are to be construed “according to its natural and ordinary meaning, read in light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract…but where there is ambiguity, clause is constructed ‘” (Darlington v Delco). Where exclusion clause is ambiguous, adopt the construction least favourable to party seeking to rely upon the protection of the clause. Court prefers good guy who has been hurt and the bad guy will have to prove the exclusion clause is able to be relied upon