Chapter 4 & 7: Contents of a contract – exclusion clauses and implied terms Terms that exclude liability - It is common for contracts 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 breach of contract 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 Court 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 (contra proferentem). 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 law - 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 courts 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.