Principles of Australian contract law : cases and materials [Fourth edition.]
 9780409345469, 0409345466

Table of contents :
Full Title
Copyright
Preface to Fourth Edition
Table of Cases
Table of Statutes
Table of Contents
1 Introduction to Contract Law
Introduction
The meaning of the word ‘contract’
The purpose of contract law
Part I: History and Theory
2 History of Contract Law
Introduction
An overview of the history of contract law
Instalment debts — legal remedies available
The use of assumpsit as a contractual action
Origins of the doctrine of consideration
3 Contract Theory
Introduction
The normative and analytic questions for contract law
Promise as the theoretical basis of contract law
Transfer of property by consent as the theoretical basis of contract law
A feminist critique of contract law
Part II: Formation of a Contract
4 The Fact of Agreement
Introduction
Offers or invitations to treat — promotional materials
Offers or invitations to treat — self-service stores
Offers or invitations to treat — auctions
Offers or invitations to treat — tenders
Counter-offer or request for further information and acceptance of offer
Withdrawal of offers
Withdrawal of offer where performance has commenced
Acceptance of offers and reliance
The postal acceptance rule
The extent of the postal acceptance rule
Exclusion of the postal acceptance rule
Alternatives to offer and acceptance analysis
5 The Requirements of Certainty and Completeness
Introduction
Agreements must be sufficiently complete
Agreements must be sufficiently certain
Agreements to negotiate in good faith and the requirement of certainty
The enforcement of informal agreements
6 Consideration
Introduction
Consideration must be bargained for
Consideration must move from the promisee
‘Past consideration’ is not consideration
The existing contractual duty rule
The rule in pinnel’s case
7 Intention to Create Legal Relations
Introduction
The presumption in family, social, or domestic agreements
Rebuttal of the presumption in family, social, or domestic agreements
The presumption in commercial agreements
The ermogenous approach to intention
8 The Requirement of Writing
Introduction
The requirement of a written memorandum or note
The payment of money and the doctrine of part performance
9 Capacity
Introduction
The contractual capacity of an infant
The capacity of a company at common law
Part III: Terms of a Contract
10 Express Terms
Introduction
Terms and mere representations
The effect of signing a contract
Misrepresentation and the signature rule
Incorporation of terms by reasonable notice
Incorporation of terms on the basis of prior dealings
The parol evidence rule
Collateral contracts
Collateral contracts and the requirement of consistency
11 Implied Terms
Introduction
Terms implied on the facts of the case
Terms implied by law
Terms implied by custom
Implied terms of good faith
12 Construction of Contractual Terms
Introduction
General principles of construction of terms
The rule against evidence of pre-contractual negotiations
13 Construction of Exclusion Clauses
Introduction
General principles of construction of exclusion clauses
Exclusion clauses and liability in negligence
The four corners rule
Part IV: Vitiating Factors
14 Misrepresentation
Introduction
Statement of fact
Inducement
The relevance of the materiality of the statement of fact
15 Misleading or Deceptive Conduct
Introduction
The meaning of misleading or deceptive conduct
Statutory remedies for misleading or deceptive conduct
The ‘conduit’ argument
16 Mistake
Introduction
Common mistake at common law
No common mistake in equity
Unilateral mistake as to identity
Unilateral mistake as to the terms of a contract
The doctrine of non est factum
17 Duress
Introduction
The meaning of duress
Duress to the person
Economic duress
18 Undue Influence
Introduction
The principles of undue influence
Rebutting the presumption of undue influence
The wife’s guarantee of her husband’s loan
19 Unconscionable Transactions
Introduction
Unconscionability and intoxication and mental and physical weakness
Unconscionability and business inexperience
Unconscionability and problem gambling
Unconscionability and business regulation — the Australian Consumer Law
20 Contracts Review Act 1980 (NSW)
Introduction
What is unjust?
21 Unfair Contracts
Introduction
Unfair contracts
Unfair contractual terms in employment contracts
Part V: Discharge
22 Discharge by Performance
Introduction
The requirement for exact performance
Substantial performance and discharge of contractual obligations
23 Discharge by Agreement
Introduction
Discharge of a contract pursuant to an express or implied term of the original contract
Discharge of a contract where the contract expressly provides that a nominated event must occur, but that event does not occur
Discharge of a contract by release
Discharge of a contract by abandonment
24 Discharge by Breach
Introduction
Conditions and warranties
Intermediate terms
Time stipulations and notices to complete
Termination pursuant to a contractual right to terminate
Anticipatory breach
Relief against forfeiture
25 Discharge by Frustration
Introduction
Court orders leading to frustration
Destruction of the subject matter of the contract leading to frustration
Failure of a condition of the contract leading to frustration
The effect of frustration at common law
Part VI: Illegality
26 Statutory Illegality
Introduction
Express statutory illegality
Implied statutory illegality
27 Common Law Illegality
Introduction
The illegality defence
Contracts contrary to public policy
Contracts prejudicial to the administration of justice
Contracts in restraint of trade generally
Restraints of trade in employment contracts
Restraints of trade in exclusive dealing contracts
Enforcement of a post-employment restraint of trade following repudiation by the employer
28 Effect of Illegality
Introduction
The enforceability of contracts that are unlawful or have an unlawful purpose
Illegality and claims based in tort law
Illegality and the doctrine of severance
Part VII: Remedies Based on Contract
29 Damages for Breach of Contract
Introduction
Exemplary damages and breach of contract
The date for assessment of damages
Damages for loss of a chance
The recovery of damages for non-economic loss
Damages for reliance loss
Damages for indemnity loss
The rules of remoteness
The obligation to mitigate
30 Actions for a Fixed Sum and Debt
Introduction
The principles relating to penalties
Actions for the recovery of a debt and instalment contract payments
Actions in debt and the duty to mitigate
31 Specific Performance
Introduction
The inadequacy of damages at common law
Contracts for the sale of personalty
Contracts for personal services
Constant court supervision of an order for specific performance
Laches
The requirement that the plaintiff be ready, willing, and able
32 Injunctions
Introduction
Restraints of trade in personal services contracts
33 Equitable Damages
Introduction
Equitable damages in lieu of specific performance
Equitable damages in addition to specific performance
34 Rectification
Introduction
Rectification for common mistake
Rectification for illegality
Rectification for unilateral mistake
35 Rescission
Introduction
The meaning of restitutio in integrum
Partial rescission
Loss of the right to rescind by affirmation
Part VIII: Other Bases of Relief
36 Equitable Estoppel
Introduction
The nature of equitable estoppel
Detriment and equitable estoppel
Relief based upon equitable estoppel
37 Liability in the Law of Torts
Introduction
Fraudulent misrepresentation
Carelessly made pre-contractual statements
Concurrent liability and the measure of damages
Torts for economic loss caused by intentional acts
Justification and inducement to breach a contract
38 Restitution
Introduction
Principles regulating the recovery of the value of work done or other non-monetary benefits supplied
Entire contracts and restitution
Restitution and recovery of money paid by mistake
Recovery of money paid where consideration has totally failed
Part IX: Third Party Rights
39 Privity of Contract
Introduction
The privity of contract principle
The trident case
‘Himalaya clauses’ and privity of contract
40 Assignment of Contractual Rights and Liabilities
Introduction
Contractual rights as choses in action
Assignments in equity
Assignment of the right to litigate for breach of contract
Index

Citation preview

PRINCIPLES OF AUSTRALIAN CONTRACT LAW Cases and Materials Fourth Edition

PRINCIPLES OF AUSTRALIAN CONTRACT LAW Cases and Materials Fourth Edition

PETER RADAN BA, LLB, PhD (Syd), Dip Ed (SCAE) Professor of Law, Macquarie Law School, Macquarie University

JOHN GOOLEY BA, LLB (Syd), LLM (Hons) (Syd), Dip Ed (SCAE) Barrister, 153 Phillip, Barristers, Sydney

ILIJA VICKOVICH BA (Hons), LLB (Syd), LLM (Macq) Roll of Legal Practitioners, New South Wales Lecturer, Macquarie Law School, Macquarie University

LexisNexis Butterworths Australia 2018

LexisNexis AUSTRALIA LexisNexis Butterworths 475–495 Victoria Avenue, CHATSWOOD NSW 2067 On the internet at: www.lexisnexis.com.au ARGENTINA LexisNexis Argentina, BUENOS AIRES AUSTRIA LexisNexis Verlag ARD Orac GmbH & Co KG, VIENNA BRAZIL LexisNexis Latin America, SAO PAULO CANADA LexisNexis Canada, Markham, ONTARIO CHILE LexisNexis Chile, SANTIAGO CHINA LexisNexis China, BEIJING, SHANGHAI CZECH REPUBLIC Nakladatelství Orac sro, PRAGUE FRANCE LexisNexis SA, PARIS GERMANY LexisNexis Germany, FRANKFURT HONG KONG LexisNexis Hong Kong, HONG KONG HUNGARY HVG-Orac, BUDAPEST INDIA LexisNexis, NEW DELHI ITALY Dott A Giuffrè Editore SpA, MILAN JAPAN LexisNexis Japan KK, TOKYO KOREA LexisNexis, SEOUL MALAYSIA LexisNexis Malaysia Sdn Bhd, PETALING JAYA, SELANGOR NEW ZEALAND LexisNexis, WELLINGTON POLAND Wydawnictwo Prawnicze LexisNexis, WARSAW SINGAPORE LexisNexis, SINGAPORE SOUTH AFRICA LexisNexis Butterworths, DURBAN SWITZERLAND Staempfli Verlag AG, BERNE TAIWAN LexisNexis, TAIWAN UNITED KINGDOM LexisNexis UK, LONDON, EDINBURGH USA LexisNexis Group, New York, NEW YORK LexisNexis, Miamisburg, OHIO National Library of Australia Cataloguing-in-Publication entry

Author: Title: Edition: ISBN: Notes: Subjects: Other Authors/Contributors:

Radan, Peter. Principles of Australian contract law cases and materials. 4th edition. 9780409345452 (pbk). 9780409345469 (ebk). Includes index. Contracts — Australia. Contracts — Australia — Cases. Gooley, J. V. (John V.). Vickovich, Ilija.

© 2018 Reed International Books Australia Pty Limited trading as LexisNexis. First edition 2007. Second edition 2009 (reprinted 2012 (twice), 2013 and 2014). Third edition 2015 (reprinted 2017) This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Typeset in Minion Pro and Myriad Pro. Printed in China. Visit LexisNexis Butterworths at www.lexisnexis.com.au

PREFACE TO FOURTH EDITION In the years since the publication of the previous edition of this casebook there have been a number of important cases in the field of contract law that have been included in this edition. These include Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, Commonwealth Bank of Australia v Barker (2014) 253 CLR 169, Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, Gnych v Polish Club Ltd (2015) 255 CLR 414, Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147, Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569, Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2016] AC 1172, CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11, Zurich Insurance Co plc v Hayward [2017] AC 152, and Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560. As with the previous editions of this casebook, in this edition we have used a standard template in which, for each case, we have sought to clearly set out: (i) a summary of the relevant facts; (ii) the issue(s) before the court; (iii) the decision of the court; and (iv) the matter(s) addressed in the extracts. At the end of each extracted case we have referred readers to the relevant secondary materials dealing with the case as well as the relevant parts of Radan, Gooley, and Vickovich, Principles of Australian Contract Law, 4th ed, LexisNexis Butterworths, Sydney, 2017. In setting out the facts of a case and in the judgment extracts, we have generally referred to the parties by name rather than by their procedural appellations, such as plaintiff and defendant, appellant and respondent, and so on. This, we believe, makes it easier to read and understand the extracts. For the same reason we have, as far as possible, edited the extracts so that the names and citations of cases referred to by the judges have been footnoted, even though in the case reports they often appear in the body of the judgment. Furthermore, we have exercised our discretion to delete some of the citations and footnotes from the extracted judgments.

As with the previous editions of this casebook, the completion of this edition could not have been achieved without the support and encouragement of our families, friends, and colleagues. In particular, we acknowledge the love, support, encouragement, and most of all understanding of our families: Sybil, Rade, Andrija, and Aleksandra Radan; Sylvia, Andrew, Nathan, and Mitchell Gooley (John would also like to acknowledge the valuable research work and proofing undertaken for him for this edition by Mitchell Gooley); and Aleks, Daniel, and Damien Vickovich. At LexisNexis Butterworths we wish, in particular, to thank our Commissioning Editor, Jocelyn Holmes, and Book Editor, Jeanette Maree, for the skill, care, and efficiency with which they turned our manuscript into a book. Peter Radan John Gooley Ilija Vickovich 9 August 2017

TABLE OF CASES References are to Introductions to Chapters, Extracts, and Comments to Extracts; bold references indicate where cases are extracted

A A v Hayden (1984) 156 CLR 532 …. 27.1, 27.4C, 27.4.2 A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555 …. 34.4C A Schroeder Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616 …. 32.3C Aaron’s Reefs Ltd v Twiss [1896] AC 273 …. 14.2C Abbott v Lance (1860) Legge 1283 …. 4.8C Aberfoyle Plantations Ltd v Cheng [1960] AC 115 …. 23.3C Abrahams v Herbert Reiach Ltd (1922) 1 KB 477 …. 29.6C Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773 …. 35.2C, 35.5C ACN 002 804 702 (formerly Brooks Building) v McDonald [2009] NSWSC 610 …. 22.4C ACN 074 971 109 (as trustee for Argot Unit Trust) v National Mutual Life Association of Australasia Ltd [2006] VSC 507 …. 36.4C — v — (2008) 21 VR 351 …. 36.1, 36.4C Adam v Newbigging (1888) 13 App Cas 308 …. 35.2C Adams v Lindsell (1818) 106 ER 250 …. 4.6C Adamson v New South Wales Rugby League Ltd (1991) 103 ALR 319 …. 32.3C Adelaide City Corp v Jennings Industries Ltd (1985) 156 CLR 274 …. 11.3C Agip (Africa) Ltd v Jackson [1990] Ch 265 …. 34.4C Agip SpA v Navigazione Alta Italia SpA [1984] 1 Lloyd’s Rep 353 …. 34.4C Agricultural and Rural Finance Ltd v Gardiner (2008) 238 CLR 570 …. 12.1 Ahmed Angullia Bin Hadjee Mohamed Salleh Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 …. 5.4C

Aiken v Short (1856) 156 ER 1180 …. 38.5C Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101 …. 13.2C Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 …. 34.2C Ajayi v R T Briscoe (Nigeria) Ltd [1964] 3 All ER 556 …. 36.2C, 36.3C Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 …. 15.4C Alam v Preston (1938) 38 SR (NSW) 475 …. 31.7C Alati v Kruger (1955) 94 CLR 216 …. 35.1, 35.2C, 35.4C Albacruz v Albazero [1977] AC 774 …. 39.3C Albert D Goan & Co v Interprofessionelle des Oleagineux Alimentaires [1960] 2 QB 318 …. 25.3C Albert House Ltd (in voluntary liquidation) v Brisbane City Council (1968) 42 ALJR 158 …. 36.3C Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 …. 5.4C, 11.6C Alderslade v Hendon Laundry Ltd [1945] KB 189 …. 13.1, 13.3C, 13.4C Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 …. 29.9C — v Rayson [1936] 1 KB 169 …. 28.4C Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC 281 …. 30.2.3 Alghussein Establishment v Eton College [1988] 1 WLR 587; [1991] 1 All ER 267 …. 26.6C Allan’s Trustees v Lord Advocate [1971] SC (HL) 45 …. 39.3C Allcard v Skinner (1887) 36 Ch D 145 …. 18.2C Allen v Flood [1898] AC 1 …. 37.6C Alley v Deschamps (1806) 33 ER 278 …. 39.2C, 39.3C Allingham, Re; Allingham v Allingham [1932] VLR 469 …. 17.4C Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 …. 36.2C Amev-Udc Finance Ltd v Austin (1986) 162 CLR 170 …. 30.4C Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 …. 27.1, 27.7C, 27.7.2

AMP (UK) plc v Barker [2001] PLR 77 …. 34.3C Anderson Ltd v Daniel [1924] 1 KB 138 …. 26.1, 26.4C, 26.5C Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 …. 30.1, 30.2.2, 30.3C, 30.4C Anglia Television Ltd v Reed [1972] 1 QB 60 …. 29.6C Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 …. 24.4C Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 …. 15.3C Antonovic v Volker (1986) 7 NSWLR 151 …. 20.2C Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 …. 26.3C, 27.2E, 28.2C, 28.3C Arcos Ltd v EA Ronaasen & Sons [1933] AC 470 …. 22.2.2 Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 …. 15.5C, 15.6C ARPL Palaniappa Chettiar v PLAR Arunaalam Chettiar [1962] AC 294 …. 28.6C Ashbury Rly Carriage and Iron Co (Ltd) v Riche (1875) LR 7 HL 653 …. 9.5C Ashton v Pratt (2015) 88 NSWLR 281 …. 7.1, 7.6C ‘Asia Star’, The [2010] 2 Lloyd’s Rep 121 …. 29.1, 29.11C Askey v Golden Wine Co Ltd [1948] 2 All ER 5 …. 27.2E Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 …. 24.1, 24.2C, 24.4C, 32.3C Astley v Reynolds (1731) 93 ER 939 …. 17.5C ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 2) (1991) 27 FCR 492 …. 15.4C Atlantic Coast Line Railroad Co v Florida 295 US 301 (1935) …. 38.6C Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 …. 11.4C Attorney-General v Codner [1973] 1 NZLR 545 …. 36.2C Attorney-General (Hong Kong) v Humphreys Estate Ltd [1987] AC 114 …. 36.2C Attwood v Lamont (1920) 3 KB 571 …. 27.6C

— v Small (1835–1840) 7 ER 684 …. 14.5C Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 …. 36.2.2 Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 …. 17.4.2 — v Westpac Banking Corporation (1988) 164 CLR 662 …. 38.5C, 38.6C, 39.3C — v Widin (1990) 26 FCR 21 …. 8.3C Australian Blue Metal Ltd v Hughes [1963] AC 74 …. 23.2C Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 …. 12.1 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 …. 38.6C — v Redmore Pty Ltd (1989) 166 CLR 454 …. 26.6C — v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 …. 7.5C, 34.2C Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 232 CLR 1 …. 26.6C — v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 …. 19.1, 19.5C — v — (No 2) (2000) 96 FCR 491 …. 19.5C — v Samton Holdings Pty Ltd (2002) 117 FCR 301 …. 19.5C, 19.5.2 Australian Estates Pty Ltd v Cairns City Council (2005) QCA 328 …. 16.5.2 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 …. 38.1, 38.6C Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201 …. 33.3C Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 …. 4.2.2, 6.1, 6.2C, 7.5C Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 …. 27.8C Awwad v Geraghty [2001] QB 570 …. 27.2E B B and B Viennese Fashions v Losane [1952] 1 All ER 909 …. 26.4C Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 …. 34.4C

Bagot v Stevens Scanlan & Co Ltd [1966] 1 QB 197 …. 37.4C Bahr v Nicolay (No 2) (1988) 164 CLR 604 …. 24.8C, 31.7.2 Bailey v De Crespigny (1869) LR 4 QB 180 …. 25.5C Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 …. 24.8C Baker v Campbell (1983) 153 CLR 52 …. 27.4C — v Paine (1750) 27 ER 1140 …. 34.2C Balfour v Balfour [1919] 2 KB 571 …. 7.1, 7.2C, 7.2.2, 7.3C Balfour & Clark v Hollandia Ravensthorpe NL (1978) 18 SASR 240 …. 14.1, 14.2C Ball v Storie (1823) 57 ER 84 …. 34.2C Balog v Crestani (1975) 132 CLR 289 …. 24.5C Baltic Shipping Co v Dillon (1993) 176 CLR 344 …. 20.2.2, 29.1, 29.5C — v Dillon ‘Mikhail Lermontov’ (1991) 22 NSWLR 1 …. 20.1, 20.2C Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 …. 29.11C Bando v Goldberg (1944) 62 WN (NSW) 87 …. 31.7C Bank of New South Wales v Rogers (1941) 65 CLR 42 …. 18.2C, 18.6C Bank of Victoria Ltd v Mueller [1925] VLR 642 …. 18.6C, 19.3C, 35.4C Bank of Western Australia Ltd v Primanzon [2010] NSWSC 862 …. 20.1 Bannerman v White (1861) 142 ER 685 …. 24.2C Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 …. 15.5C, 29.10C Banque Worms v BankAmerica International 77 NY 2d 362 (1991) …. 38.6C Barbagallo v J & F Catelan Pty Ltd [1986] 1 Qd R 245 …. 33.1 Barclays Bank v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677 …. 38.5C Barclays Bank plc v O’Brien [1994] 1 AC 180 …. 18.6C Barry v Davies [2001] 1 All ER 944 …. 4.1, 4.4C Barton v Armstrong [1973] 2 NSWLR 598 …. 17.4C — v — [1975] 2 All ER 465 …. 37.3C — v — [1976] AC 104 …. 17.1, 17.2C, 17.3C, 17.4C

Bassin v Standen (1945) 46 SR (NSW) 16 …. 26.6C Batterham v QSR Ltd (2006) 225 CLR 237 …. 21.3C Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 …. 5.5C, 5.6C Behan v Obelon Pty Ltd (1985) 157 CLR 326 …. 18.6C Bell v Lever Brothers Ltd [1932] AC 161 …. 16.1, 16.2C, 16.3C, 16.4C, 16.5C, 16.7C, 25.2C Bellgrove v Eldridge (1954) 90 CLR 613 …. 29.7C, 29.7.3 Bennett v L & W Whitehead Ltd [1926] 2 KB 380 …. 24.6C Bentsen v Taylor, Sons & Co (No 2) (1893) 2 QB 274 …. 24.2C Beresford v Royal Insurance Co Ltd [1937] 2 KB 197 …. 26.4C — v — [1938] AC 586 …. 26.4C, 27.2E Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 …. 12.3C Berkeley v Poullett [1977] 1 EGLR 86 …. 24.8C Bernard v Williams (1928) 139 LT 22 …. 24.5C Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 …. 18.1, 18.4C Beswick v Beswick [1966] Ch 538; [1966] 3 All ER 1 …. 31.2C, 39.2C — v — [1968] AC 58 …. 31.1, 31.2C, 39.3C Betjemann v Betjemann [1895] 2 Ch 474 …. 37.3C Bettini v Gye (1876) 1 QBD 183 …. 24.2C Betts v Receiver for the Metropolitan Police District [1932] 2 KB 595 …. 28.6C Biggin and Co Ltd v Permanite Ltd (1951) 1 KB 422 …. 29.6C Bilbie v Lumley (1802) 102 ER 448 …. 38.5C Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 …. 7.6C Birkett v Acorn Business Machines Ltd [1999] 2 All ER (Comm) 429 …. 27.2E Birmingham and District Land Company v London and North Western Railway Co (1889) 40 Ch D 268 …. 36.3C Bishopsgate Motor Finance Corporation Ltd v Transport Brakes Ltd [1949] 1 KB 322 …. 28.5 Blackburn v Smith (1848) 154 ER 707 …. 35.2C Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25

…. 4.1, 4.5C Blakeley v Muller & Co [1903] 2 KB 760 …. 25.5C, 25.6C Blomley v Ryan (1956) 99 CLR 362 …. 19.1, 19.2C, 19.3C, 19.5C Blumer & Co v Scott & Sons (1874) 1R 379 …. 39.3C Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 …. 38.6C Boland (T) and Co Ltd v Dundas’s Trustees [1975] SLT 80 …. 23.3C Bond v Barrow Haematite Steel Co (1902) 1 Ch 353 …. 40.3C Bonnard v Dott [1906] 1 Ch 740 …. 26.5C Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 …. 5.1, 5.2C, 5.4C Boone v Eyre (1779) 1 H Bl 273 …. 27.8C Boucaut Pay Co Ltd v Commonwealth (1927) 40 CLR 98 …. 30.1 Bourne v Mason (1669) 86 ER 5 …. 39.2C, 39.3C Bowes v Chaleyer (1923) 32 CLR 159 …. 24.2C, 24.7C — v Shand (1877) 2 App Cas 455 …. 24.2C Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 …. 28.1, 28.2C, 28.4C, 28.5C, 28.6C, 34.3C BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 …. 38.1 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 …. 11.1, 11.2C, 11.3C, 11.4C Bradshaw v Gilbert’s (Australasian) Agency (Vic) Pty Ltd (1952) 86 CLR 209 …. 26.6C Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 …. 4.6.2, 34.2C Breen v Williams (1996) 186 CLR 71 …. 11.4C Bressan v Squires [1974] 2 NSWLR 460 …. 4.1, 4.12C Brice v Bannister (1878) 3 QBD 569 …. 40.3C Bridge v Campbell Discount Co Ltd [1962] AC 600 …. 30.3C Bridge Stockbrokers Ltd v Bridges (1985) 57 ALR 401 …. 15.2C Bridgewater v Leahy (1998) 194 CLR 457 …. 19.5C Briess v Woolley [1954] 1 All ER 909 …. 37.3C

Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 …. 4.1, 4.11C Brisbane v Dacres (1813) 128 ER 641 …. 38.5C Brisbane City Council v Group Products Pty Ltd (1979) 145 CLR 143 …. 25.2C, 25.3C British Columbia Saw Mill Co Ltd v Nettleship (1868) LR 3 CP 499 …. 29.10C British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479 …. 37.6C British Road Services Ltd v Arthur V Crutchley & Co Ltd [1968] 1 All ER 811 …. 4.13C British Russian Gazette &c Ltd and Talbot v Associated Newspapers Ltd [1933] 2 KB 616 …. 23.4C Brogden v Directors of Metropolitan Ry Co (1877) 2 App Cas 666 …. 4.10C, 4.13C Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 …. 26.6C Brown v Heffer (1967) 116 CLR 344 …. 5.2C, 24.8C — v Rezitis (1971) 127 CLR 157 …. 21.1, 21.3C, 21.4C — v Smitt (1924) 34 CLR 160 …. 35.1, 35.2C, 35.3C — v — [1924] VLR 333 …. 35.5C Browne v Cornely (1533), King’s Bench 27/1086, m 28 …. 2.5E Brownlie v Campbell (1880) 5 App Cas 925 …. 37.2C Bryne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 …. 4.6C Buckley v Tutty (1971) 125 CLR 353 …. 32.3C Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104 …. 37.7C Bull v Attorney-General (NSW) (1913) 17 CLR 370 …. 15.4C Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144 …. 11.4C Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 …. 5.4C, 11.1, 11.6C Burrowes v Lock (1805) 32 ER 927 …. 37.2C Busshewell v Rye (1546) King’s Bench 17/1138, m 67d …. 2.5E Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 …. 15.1, 15.6C

— v Stapely (1685) 23 ER 524 …. 8.3C Butler v Fairclough (1917) 23 CLR 78 …. 29.2C Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965 …. 4.1, 4.13C Butlin’s Settlement Trusts, Re [1976] Ch 251 …. 34.3C Butt v McDonald (1896) 7 QLJ 68 …. 5.4C Butterworth v Kingsway Motors Ltd (1954) 2 All ER 694 …. 29.5C Butts v O’Dwyer (1952) 87 CLR 267 …. 5.2C Byrne v Australian Airlines Ltd (1995) 185 CLR 410 …. 11.1, 11.3C, 11.4C, 26.6C — v Cope Street Pty Ltd [2009] NSWSC 947 …. 20.1 Byrne & Frew v Australian Airlines Ltd (1994) 120 ALR 274 …. 11.3C Byrnes v Kendle (2011) 243 CLR 253 …. 12.1 Byron v Clay (1989) 867 F 2d 1049 …. 28.2C C C H Giles & Co Ltd v Morris [1972] 1 All ER 960 …. 31.1, 31.4C, 31.5C CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11 …. 34.1, 34.3C Cadbury-Schweppes Pty Ltd v Pub Squash Co Pty Ltd (1980) 32 ALR 387 …. 15.3C Camden Nominees Ltd v Forcey [1940] Ch 352 …. 37.7C Cameron v UBS AG (2000) 2 VR 108 …. 24.8C Campbell v Jones (1796) 6 TR 570 …. 27.8C — v Kitchen & Sons Ltd and Brisbane Soap Co Ltd (1910) 12 CLR 515 …. 38.6C Canada Steamship Lines Ltd v The King [1952] AC 192 …. 13.3.2 Canning v Temby (1905) 3 CLR 419 …. 24.5C Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 …. 4.1, 4.2C, 4.5C, 6.2C, 7.4C, 39.4C Carmichael v Carmichael’s Executrix [1920] SC (HL) 195 …. 39.3C Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 …. 24.5C, 24.7C

Casey’s Patents, Re; Stewart v Casey [1892] 1 Ch 104 …. 6.4C Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 …. 16.6.3 Cassidy v Ministry of Health [1951] 2 KB 343 …. 37.4C Castle Constructions Pty Limited v Fekala Pty Ltd [2006] NSWCA 133 …. 29.9C Caterpillar of Australia Pty Ltd v Industrial Court of NSW (2009) 78 NSWLR 43 …. 21.3C Cathels v Commissioner of Stamp Duties [1962] SR (NSW) 455 …. 39.2C Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2016] AC 1172; [2016] 2 All ER 519; [2015] 3 WLR 1373 …. 30.1, 30.3C, 30.4C Cawenfeld v Elder (1546) King’s Bench 27/1137, m 113d …. 2.5E CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013 …. 37.6C CCC Films Ltd v Impact Quadrant Films Ltd [1985] QB 16 …. 29.6C Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 …. 36.2C, 36.3C Chadwick v Manning [1896] AC 231 …. 36.3C Chandler v Webster [1904] 1 KB 493 …. 25.6C Chang v Registrar Titles (1976) 137 CLR 177 …. 24.8C Chapelton v Barry Urban District Council [1940] 1 KB 532 …. 10.5C Chaplin v Hicks [1911] 2 KB 786 …. 5.4C, 29.4C, 29.6C — v Leslie Frewin (Publishers) Ltd [1966] Ch 71 …. 9.4C Charrington & Co Ltd v Wooder [1914] AC 71 …. 12.2C Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 …. 12.1, 12.4C Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 …. 26.6C Cheese v Thomas [1994] 1 WLR 129 …. 35.4C Chemists’ Federation Agreement (No 2), Re [1958] 1 WLR 1192 …. 37.7C Chief Commissioner of Stamp Duties (NSW) v Paliflex Pty Ltd (1999) 47 NSWLR 382 …. 24.8C Chinnock v Marchioness of Ely (1865) 46 ER 1066 …. 5.5C Ciavarella v Balmer (1983) 153 CLR 438 …. 24.8C Clark v Kirby-Smith [1964] Ch 506 …. 37.4C

— v Malpas (1862) 54 ER 1067; 45 ER 1238 …. 19.2C — v Urquhart [1930] AC 28 …. 15.5C Clarke v Dickson (1858) 120 ER 463 …. 35.2C — v — (1859) 6 CBNS 453 …. 14.3C — v Shee (1774) 98 ER 1041 …. 38.6C Classic International v Lagos (2002) 60 NSWLR 241 …. 16.5.2 Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 …. 39.2C Clements v London and North Western Railway Co [1884] 2 QB 482 …. 9.2C, 9.3C Clifton v Coffey (1924) 34 CLR 434 …. 24.2C Clough v London and North Western Railway Co (1871) LR 7 Exch 26 …. 35.5C Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 …. 34.2C, 34.3C Clydebank Engineering and Shipbuilding Co v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 …. 30.2C, 30.3C Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 …. 5.4C Coastal Estates Pty Ltd v Melevende [1965] VR 433 …. 35.1, 35.5C Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 …. 7.5C, 10.8C, 11.1, 11.2C, 11.3C, 11.4C, 12.1, 12.2C, 12.3C, 25.1, 25.2C, 25.3C, 34.2C Coggs v Bernard (1703) 92 ER 107 …. 25.4C Combe v Combe [1951] 2 KB 215 …. 36.2C Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 …. 18.6C, 19.1, 19.3C, 19.4C, 19.5C, 35.4C Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR 337 …. 15.2C Commercial Life Assurance Co v Drever [1948] 2 DLR 241 …. 26.3C Commerzbank AG v Price-Jones [2003] EWCA Civ 1663 …. 38.6C Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 …. 34.4C Commissioner of Inland Revenue v Morris [1958] NZLR 1126 …. 36.3C

Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 …. 34.2C, 34.3C Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 …. 39.3C Commissioner of State Taxation v Cyril Henschke Pty Ltd …. 23.5C Commonwealth v Scituate Savings Bank (1884) 137 Mass 301 …. 36.2C — v Verwayen (1990) 170 CLR 394 …. 36.4C, 38.6C Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; 312 ALR 356 …. 11.1, 11.4C, 26.6C Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 …. 15.4C, 29.1, 29.6C, 38.6C — v Sanofi [2017] FCA 382 …. 27.4.2 Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 …. 40.4C Concut Pty Ltd v Worrell (2000) 75 ALJR 312 …. 11.4C Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Pty Ltd (1986) 160 CLR 226 …. 11.1, 11.4C, 11.5C Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 …. 39.3C Cooke v Clayworth (1811) 34 ER 222 …. 19.2C — v Oxley (1790) 100 ER 785 …. 4.6C Cooney v Burns (1922) 30 CLR 216 …. 8.3C Cooper v Phibbs (1867) LR 2 HL 149 …. 16.3C Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1996] Ch 286 …. 31.5.3 — v — [1998] AC 1 …. 31.1, 31.5C Cope v Rowlands (1836) 150 ER 707 …. 26.3C, 26.5C, 27.2E Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 …. 22.1, 22.3.2, 22.4C Cornwall v Hawkins (1872) 41 LJ Ch 436 …. 9.3C Cort v Ambergate, etc Railway Co (1851) 117 ER 1229 …. 24.7C Cory v Cory (1747) 27 ER 864 …. 19.2C

Cotman v Brougham [1918] AC 514 …. 9.5C Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 …. 5.4C, 6.1, 6.3C, 31.2.2, 39.1, 39.2C, 39.3C Council of the City of Sydney v West (1965) 114 CLR 481 …. 13.1, 13.2C, 13.5C Courage Ltd v Crehan [2001] ECR 1-6314 …. 27.2E Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84 …. 11.4C Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 …. 5.4C Couturier v Hastie (1852) 155 ER 1250 …. 16.2C — v — (1856) 10 ER 1065 …. 16.2C Crabb v Arun District Council [1976] Ch 179 …. 36.2C, 38.6C Crago v McIntyre [1976] 1 NSWLR 729 …. 16.8C Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390 …. 34.2C Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd (1988) 14 NSWLR 438 …. 23.1, 23.2C Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 …. 17.1, 17.2.3, 17.4C Cresswell v Potter [1978] 1 WLR 255 …. 19.3C Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221 …. 25.3C Crosse v Gardner (1688) 90 ER 656 …. 10.3C Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSC 163 …. 27.8.2 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 33 ALR 384 …. 10.10.2, 36.2.3 Cummings v London Bullion Co Ltd [1952] 1 KB 327 …. 29.3C Cundy v Lindsay (1878) 3 App Cas 459 …. 16.6C Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 …. 32.1, 32.3C Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 …. 10.1, 10.5C — v Perry (1802) 31 ERR 1285 …. 27.2E Cutter v Powell (1795) 101 ER 573 …. 22.1, 22.2C, 38.4C Cutts v Holland [1965] TAS SR 69 …. 23.5C

Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd (2011) 282 ALR 152 …. 12.3C D D & C Builders Ltd v Rees [1966] 2 QB 617 …. 17.5C Dagenham (Thames) Dock Co, Re; Ex parte Hulse (1873) LR 8 Ch App 1022 …. 24.8C Dahl v Nelson (1881) 6 App Cas 38 …. 25.2C Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762 …. 37.6C Dale v Sollet (1767) 98 ER 112 …. 38.6C Dalgety and New Zealand Loan Ltd v V C Imeson Pty Ltd [1963] SR (NSW) 998 …. 26.3C Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 …. 32.3C Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 …. 10.4C, 13.1, 13.2C, 13.3.3, 13.3C Daventry District Council v Daventry & District Housing Ltd [2012] 1 WLR 1333 …. 34.2.2 David Payne & Co Ltd, Re; Young v David Payne & Co Ltd [1904] 2 Ch 608 …. 9.5C David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 …. 38.1, 38.5C, 38.6C Davies v Presbyterian Church of Wales [1986] 1 WLR 323 …. 7.5.2 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 …. 25.2C, 25.3C Day v Newman (1788) 2 Cox 77 …. 31.3C DC Thomson & Co Ltd v Deakin [1952] Ch 646 …. 37.6C De Francisco v Barnum (1890) 43 Ch D 165 …. 9.3C — v — [1894] 2 QB 430 …. 9.2C, 9.4C De Lassalle v Guildford [1901] 2 KB 215 …. 10.10C De Medina v Norman (1842) 152 ER 347 …. 24.7C Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 2 All ER 216 …. 23.2C, 24.4C

Delaforce v Simpson-Cook (2010) 78 NSWLR 483 …. 38.6C Delooze v Healey [2007] WASCA 157 …. 11.4C Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608 …. 15.4C Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699; [1968] 3 All ER 513 …. 9.4C Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 …. 25.2C Denton v Great Northern Railway Company (1856) 119 ER 701 …. 4.4C Derry v Peek (1889) 14 App Cas 337 …. 37.1, 37.2C Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 …. 15.4C Dey v Victorian Railways Commissioners (1949) 78 CLR 62 …. 34.3C, 35.5C Diagnostic X-Ray Services Pty Ltd v Jewel Food Stores Pty Ltd (2001) 4 VR 632 …. 31.5.3 Dick Bentley Products Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 …. 10.2C Dickinson v Dodds (1876) 2 Ch D 463 …. 4.1, 4.7C Dietrich v R (1992) 177 CLR 292 …. 11.4C Dillon v Baltic Shipping Co, The ‘Mikhail Lermontov’ (1989) 21 NSWLR 614 …. 29.5C — v Dean 551 NYS 2d 547 (1990) …. 28.2C — v Nash Properties Pty Ltd [1950] VLR 293 …. 33.1 Dillwyn v Llewelyn (1862) 45 ER 1285 …. 36.2C, 36.4C Diocese of Southwark v Coker [1998] ICR 140 …. 7.5C, 7.5.2 Diplock, Re [1948] 1 Ch 465 …. 19.3C Director of Public Prosecutions for Northern Ireland v Lynch [1975] AC 653 …. 17.4C Doherty v Allman (1878) 3 App Cas 709 …. 32.2C Donoghue v Stevenson [1932] AC 562 …. 13.4C Douglas v Hello Ltd [2008] 1 AC 1 …. 37.6C Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 …. 15.5C, 37.4C — v White City Stadium Ltd [1935] 1 KB 110 …. 9.4C Drimmie v Davies [1899] 1 IR 176 …. 39.2C, 39.3C

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12 …. 12.2C, 23.5C, 24.4C, 24.7C Duffel v Wilson (1808) 170 ER 999 …. 14.2C Duggan v Barnes [1923] VLR 27 …. 5.3C Dunlop v Higgins (1848) 9 ER 805 …. 4.6C Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 …. 30.1, 30.2C, 30.3C — v Selfridge & Co Ltd [1915] AC 847 …. 39.2C, 39.3C Dunnage v White (1818) 36 ER 329 …. 19.2C Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd [1968] 2 QB 839 …. 36.2C E Earl v Hector Whaling Ltd [1961] 1 Lloyd’s Rep 459 …. 34.2C Earl of Chesterfield v Janssen (1751) 28 ER 82 …. 19.3C, 19.4C East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 …. 12.4C Eccles v Bryan and Pollock [1948] Ch 93 …. 5.5C Edgington v Fitzmaurice (1885) 29 Ch D 459; [1881–5] All ER Rep 856 …. 14.1, 14.3C, 37.3C Edward Street Properties Pty Ltd v Collins [1977] Qd R 399 …. 33.1 Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & TowageLtd (The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517 …. 25.3C Egerton v Brownlow (1853) 10 ER 359 …. 27.3C Elder’s Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1941) 65 CLR 603 …. 24.6C — v E G Reeves Pty Ltd (1987) 78 ALR 193 …. 34.2C Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 …. 5.6C, 12.1, 12.3C Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2002) 11 BPR 20,841 …. 20.3C Ellis v Rogers (1884) 29 Ch D 661 …. 31.7C — v Torrington [1920] 1 KB 399 …. 40.4C

Ellul & Ellul v Oakes (1972) 3 SASR 377 …. 10.1, 10.2C Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 …. 15.5C Else (1982) Ltd v Parkland Holdings Ltd [1994] 1 BCLC 130 …. 30.4C Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 …. 37.6C English v Dedham Vale Properties Ltd [1978] 1 All ER 382 …. 33.1 Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 …. 4.11C Environment Agency v Empress Car Co (Abertillery) Ltd [1999] AC 22 …. 15.4C Equititrust Ltd (formerly Equitiloan Ltd) v Franks (2009) 259 ALR 388 …. 36.1 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 …. 26.6C, 34.3C, 38.1, 38.6C, 38.7C Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 …. 31.6C, 35.2C, 35.3C, 35.4C Ermogenous v Greek Orthodox Community of South Australia Inc (1997) 64 SAIR 622 …. 7.5C — v — (2002) 209 CLR 95 …. 7.1, 7.5C, 7.5.3, 7.5.4, 7.6C Erskine v Adeane (1873) LR 8 Ch App 756 …. 10.2C Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 …. 20.3C Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 …. 10.4C — v Plowman (1995) 128 ALR 391 …. 11.3C Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 …. 27.7C — v Mardon [1976] QB 801 …. 37.1, 37.4C Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117 …. 7.1, 7.4C Euro-Diam Ltd v Bathurst [1990] 1 QB 1 …. 27.2E European Bank Ltd v Evans (2010) 240 CLR 432 …. 29.1 Evans v Benson and Co [1961] WALR 13 …. 35.5C — v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 237 …. 7.5.4, 7.6C

Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 …. 32.3C Evanturel v Evanturel (1874) LR 6 PC 1 …. 27.3C Everet v Williams (1893) 9 LQR 197 …. 27.2E Everitt v Everitt (1870) LR 10 Eq Cas 405 …. 18.4C F F A Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2AC 397 …. 25.2C Fagan v Green & Edwards Ltd [1926] 1 KB 102 …. 13.3C Fairbanks v Snow 13 NE 596 (1887) …. 17.3C Falcke v Gray (1859) 62 ER 250 …. 31.1, 31.3C — v Scottish Imperial Insurance Company (1886) 34 Ch D 234 …. 38.3C Falconer v Wilson [1973] 2 NSWLR 131 …. 24.5C Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 …. 38.6C Farmer v Arundel (1772) 96 ER 485 …. 38.5C — v Honan (1919) 26 CLR 183 …. 5.5C Farrow Mortgage Services Pty Ltd (in liq) v Edgar (1993) 114 ALR 1 …. 28.2C — v Slade and Nelson (1996) 38 NSWLR 636 …. 34.2C Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260; (2011) 15 BPR 29,445 …. 20.3C Fawcett v Star Car Sales Ltd [1960] NZLR 406 …. 16.6C Fazio v Fazio [2012] WASCA 72 …. 23.1, 23.5C Fercometal SARL v Mediterranean Shipping Co SA [1989] 1 AC 788 …. 24.7C Ferguson v Wilson (1866) LR 2 Ch 77 …. 33.2C Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 …. 25.1, 25.6C, 29.5C, 38.6C Fidler v Sun Life Assurance Co of Canada (2006) 271 DLR (4th) 1 …. 29.5.3 Filby v Hounsell [1896] 2 Ch 737 …. 5.5C Fink v Fink (1946) 74 CLR 127 …. 29.6C Fish v Solution 6 Holdings Ltd (2006) 225 CLR 180 …. 21.1, 21.3C Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 …. 28.1, 28.3C

— v Masters (1956) 95 CLR 420; [1956] HCA 53 …. 23.5C, 31.6C Flight v Booth (1834) 131 ER 1160 …. 24.2C Flockton v Hall (1849) 14 QB 380; 117 ER 150 …. 23.4C — v — (1851) 16 QB 1039; 117 ER 1179 …. 23.4C Foakes v Beer (1884) 9 App Cas 605 …. 6.1, 6.6C, 36.3C Foran v Wight (1989) 168 CLR 385 …. 24.1, 24.7C Forbes v Australian Yachting Federation Inc (1996) 131 FLR 241 …. 4.8.2 Ford v Beech (1848) 116 ER 693 …. 23.4C — v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 …. 16.1, 16.8C Ford-Hunt v Raghbir Singh [1973] 2 All ER 700 …. 33.1, 33.3C Foreman v Great Western Railway Company (1878) 38 LT 851 …. 10.4C Fowler v Fowler (1859) 45 ER 97 …. 34.2C Francis v F Berndes Ltd [2012] 1 All ER 735 …. 34.3C Franklin v Manufacturers Mutual Insurance Ltd (1935) 35 SR (NSW) 76 …. 24.6C Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 …. 34.2C, 34.3C Free v Jetstar Airways Pty Ltd, Civil Claims [2007] VCAT 1405 …. 21.2E Friend v Brooker (2009) 239 CLR 129 …. 38.6C Fry v Lane (1888) 40 Ch D 312 …. 19.2C, 19.3C Fullers’ Theatres Ltd v Musgrove (1923) 31 CLR 524 …. 24.2C, 31.7C Fyneux v Clyfford (1517) King’s Bench 27/1026, m 76 …. 2.5E G Gandy v Gandy (1885) 30 Ch D 57 …. 39.3C Gange v Sullivan (1966) 116 CLR 418 …. 23.3C Garcia v National Australia Bank Ltd (1998) 194 CLR 395 …. 18.1, 18.6C, 19.4C Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 …. 15.4C GE Capital Finance Australasia Pty Ltd v Federal Commissioner of Taxation (2011) 219 FCR 420 …. 34.3C

GEC Marconi Systems v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50 …. 22.1, 22.4C General Billposting Company Limited v Atkinson [1909] AC 118 …. 27.8C General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 …. 34.3C George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 …. 13.2C George Wimpey UK Ltd v VI Construction Ltd [2005] EWCA Civ 77 …. 34.1, 34.4C Geraets-Smits v Stichting Ziekenfonds VGZ [2001] All ER (D) 152 …. 16.4C Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42 …. 23.5C, 27.8C Gibbons v Wright (1954) 91 CLR 423 …. 16.8C Gibson v Patterson (1737) 26 ER 8 …. 31.6C Gillett v Holt [2001] Ch 210 …. 38.6C Giorgianni v R (1985) 156 CLR 473 …. 28.3C Gipps v Gipps [1978] 1 NSWLR 454 …. 37.3C Giumelli v Giumelli (1999) 196 CLR 101 …. 36.4C, 38.6C Glasier v Rolls (1889) 59 LJCh 63 …. 33.2C, 33.3C Glegg v Bromley [1912] 3 KB 474 …. 40.1, 40.4C Gnych v Polish Club Ltd (2015) 255 CLR 414 …. 26.1, 26.6C Golden Key Ltd, Re [2009] EWCA Civ 636 …. 12.3C Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 …. 12.3C Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 …. 19.3C Goss v Lord Nugent (1833) 110 ER 713 …. 12.2C Gould v Vaggelas (1984) 157 CLR 215 …. 15.2C, 15.5C Governor etc of the Poor of Kingston-upon-Hull v Petch (1854) 156 ER 583 …. 5.5C GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 …. 5.6C Grand Lodge, AOUW of Minnesota v Towne 161 NW 403 (1917) …. 38.6C Grant v Dawkins [1973] 3 All ER 897 …. 33.2C — v Downs (1976) 135 CLR 674 …. 27.4C

Graves v Legg (1854) 9 Ex 709 …. 24.2C Gray v Motor Accident Commission (1998) 196 CLR 1 …. 29.2C Great Northern Railway Co v Witham (1873) LR 9 CP 16 …. 39.4C Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 …. 16.1, 16.4C Great Western Railway and Midland Railway v Bristol Corporation [1918] LJ Ch 414 …. 12.2C Great-West Life & Annuity Insurance Co v Knudson 534 US 204 (2002) …. 38.6C Greek Orthodox Community of SA Inc v Ermogenous (2000) 77 SASR 523 …. 7.5C Green v AMP Life (2005) 13 ANZ Insurance Cases 90–124 …. 34.2C — v Sevin (1879) 13 Ch D 589 …. 24.5C Greenwood Shopping Plaza Ltd v Beattie (1980) 111 DLR (3d) 257 …. 39.3C Greig v Insole, World Series Cricket Pty Ltd v Insole [1978] 3 All ER 449 …. 9.4C Grey v Botte (1544), King’s Bench 27/1133, m 105 …. 2.5E Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 …. 33.1 Griffiths v Robins (1818) 56 ER 480 …. 18.3C Groom v Crocker [1939] 1 KB 194 …. 37.4C Groves v Groves (1829) 148 ER 1136 …. 28.2C Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 …. 36.2C, 36.3C, 38.6C H H Dakin & Co Ltd v Lee [1916] 1 KB 566 …. 22.3C Hadley v Baxendale (1854) 156 ER 145 …. 29.1, 29.5C, 29.5.3, 29.6C, 29.8C, 29.9C, 29.10C, 37.5C Hall v Brooklands Auto-Racing Club [1933] 1 KB 205 …. 13.4C — v Hebert [1993] 2 SCR 159 …. 27.2E Halt Garage (1964) Ltd, Re [1982] 3 All ER 1016 …. 9.5C Hamilton v Lethbridge (1912) 14 CLR 236 …. 9.1, 9.3C

— v Watson (1845) 8 ER 1339 …. 18.6C Hamlin v Great Northern Railway Company (1856) 156 ER 1261 …. 29.5C Hammersley v De Biel (1845) 8 ER 1312 …. 36.2C Hampton v Glamorgan County Council [1917] AC 13 …. 38.3C Haque v Haque [No 2] (1965) 114 CLR 98 …. 24.8C Harmer v Armstrong [1934] Ch 65 …. 39.3C Harris v Great Western Railway Co (1976) 1 QBD 515 …. 10.6C — v Nickerson (1873) LR 8 QB 286 …. 4.4C, 4.5C — v Wall (1847) 154 ER 51 …. 9.3C Harrison v National Bank of Australasia Ltd (1928) 23 Tas LR 1 …. 19.3C Hartog v Colin & Shields [1939] 3 All ER 566 …. 16.6C Harvy v Stone (1539) King’s Bench 27/1112, m 65 …. 2.5E Hastie v Couturier (1853) 156 ER 43 …. 16.2C Hawkins v Clayton (1988) 164 CLR 539 …. 11.3C Hayes v Dodd (1990) 2 All ER 815 …. 29.5C Head v Tattersall (1871) LR 7 Exch 7 …. 35.2C Hector’s Case (1988) 58 P&CR 156 …. 16.6C Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 …. 37.4C Heilbut, Symons & Co v Buckleton [1913] AC 30 …. 10.2C, 10.3C Henderson v Stevenson (1875) LR 2 Sc & Div 470 …. 10.6C Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 …. 15.1, 15.2C Henthorn v Fraser [1892] 2 Ch 27 …. 4.10.2, 4.11C, 4.12C Henville v Walker (2001) 206 CLR 459 …. 15.1, 15.5C Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 …. 24.2C, 29.6C Herbert Morris Ltd v Saxelby [1916] 1 AC 688 …. 27.6C, 27.7C Hewell v Court (1983) 149 CLR 639 …. 24.8C Hewton v Forster (1536) KB 27/1099, m 76 …. 2.5E Hickman v Haynes (1875) LR 10 CP 598 …. 33.2C Hill v C A Parsons & Co Ltd [1972] Ch 305 …. 32.3C

— v Van Erp (1997) 188 CLR 159 …. 15.4C Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 …. 25.2C Hispanica de Petroleos SA v Vencedora Oceanica (The Kapetan Markos NL (No 2)) [1987] 2 Lloyd’s Rep 321 …. 4.5C Hoare v Rennie (1859) 157 ER 1083 …. 24.2C Hobbs v London and South Western Railway Co (1875) LR 10 QB 111 …. 37.5C Hoenig v Isaacs [1952] 2 All ER 176 …. 22.1, 22.3C, 22.3.2, 22.4C Holland v Wilsthire (1954) 90 CLR 409 …. 24.5C, 27.8C Holman v Johnson (1775) 98 ER 1120 …. 27.2E, 28.2C, 28.3C, 28.4C, 34.3C Holmes v Harryson (1549) King’s Bench 27/1149, m 32 …. 2.5E Holt v Markham [1923] 1 KB 504 …. 36.3C — v United Security Life Ins & Trust Co (1909) 72 Atlantic Reporter 301 …. 29.6C Holwell Securities Ltd v Hughes [1974] 1 All ER 161 …. 4.12C Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 …. 12.3C Homer v Ashford (1825) 130 ER 537 …. 27.5C Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 …. 24.1, 24.3C, 24.4C Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 …. 15.2C, 15.3C Horsler v Zorro [1975] Ch 302 …. 33.2C Horsley & Weight Ltd, Re [1982] Ch 442 …. 9.5C Horwood v Millar’s Timber and Trading Co Ltd [1917] 1 KB 305 …. 40.3C Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 …. 11.3C, 12.3C Hospitality Group Pty Limited v Australian Rugby Union LTD (2001) 110 FCR 157 …. 29.2C Household Fire and Carriage Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216 …. 4.1, 4.10C, 4.11C Howard v Shirlstar Container Transport Ltd [1990] 1 WLR 1292 …. 27.2E Howe v Teefy (1927) 27 SR (NSW) 301 …. 29.1, 29.4C

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 …. 10.1, 10.9C, 10.11C, 10.11.1, 36.2C Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 …. 36.2C, 36.3C Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91 …. 5.4C Huguenin v Baseley (1807) 33 ER 526 …. 18.3C Hungerfords v Walker (1989) 171 CLR 125 …. 30.3C Hunt v Wilson [1978] 2 NZLR 261 …. 23.3C Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd [1933] 39 Com Cas 1 …. 12.2C Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 …. 12.3C Hyde v Wrench (1840) 49 ER 132 …. 4.6C, 4.13C Hydro Electric Commission of Nepean v Ontario Hydro [1982] 1 SCR 347 …. 38.5C Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 2 All ER 29 …. 29.5C Hyundai Shipbuilding and Heavy Industries Co Ltd v Pournaras (1978) 2 Lloyd’s Rep 502 …. 29.5C I IAC Leasing Ltd v Humphrey (1972) 126 CLR 131 …. 30.4C ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 …. 15.4C Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 …. 11.4C Imperial Land Co of Marseilles, Re (1872) LR 7 Ch App 587 …. 4.11C Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 …. 18.2C, 18.3C Independent Oil Industries Ltd v The Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 …. 37.7C Ingram v Little [1960] 3 All ER 332 …. 16.6C International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 …. 12.3C

Introductions Ltd, Re [1970] Ch 199 …. 9.5C Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98; [1998] 1 WLR 896 …. 12.1, 12.2.2, 12.4C Irnham v Child (1781) 28 ER 1006 …. 34.2C Irving v Kleinman [2005] NSWCA 116 …. 11.4C J J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 …. 10.1, 10.10C J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 …. 25.3C J Spurling Ltd v Bradshaw (1956) 1 WLR 461 …. 13.5C Jackson v Horizon Holidays Ltd [1975] 3 All ER 92 …. 29.5C, 39.3C — v Royal Bank of Scotland plc [2005] 2 All ER 71 …. 29.10C — v Union Marine Insurance Co (1873) LR 8 CP 572 …. 25.5C James v The Commonwealth (1939) 62 CLR 339 …. 37.7C Jamshed Khodaram Irani v Burjorji Dhunjibha (1915) 32 TLR 156 …. 24.5C Janson v Driefontein Consolidated Mines Ltd [1902] AC 484 …. 27.3C Jaques v Millar (1877) 6 Ch D 153 …. 33.3C Jarvis v Swans Tours Ltd [1973] QB 233 …. 29.5C JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 …. 8.3C, 31.5C Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 …. 36.1, 36.3C Jennings’ Trustee v King [1952] 1 Ch 899 …. 31.7C Jeune v Queens Cross Properties Ltd [1974] Ch 97 …. 31.5C Jia Min Building Construction Pte Ltd v Ann Lee Pte Ltd [2004] 3 SLR(R) 288 …. 29.11C Johnson v Agnew [1980] AC 367 …. 29.1, 29.3C, 33.1, 33.2C — v Buttress (1936) 56 CLR 113 …. 18.1, 18.2C, 18.3C — v Medlicott (1731) 24 ER …. 19.2C — v Perez (1988) 166 CLR 351 …. 29.1, 29.3C Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 …. 38.2C

Jones v Barkley (1781) 99 ER 434 …. 24.7C — v Canavan [1972] 2 NSWLR 236 …. 11.5C — v Gardiner [1902] 1 Ch 191 …. 33.3C — v Padavatton [1969] 2 All ER 616 …. 7.1, 7.3C Jordan v Jordan (1595) 78 ER 616 …. 39.2C Jorden v Money (1854) 10 ER 868 …. 36.2C, 36.3C Jorgensen v Boyce (1896) 22 VLR 408 …. 23.5C Joscelyne v Nissen [1970] 2 QB 86 …. 16.7C, 34.2C K Kadner v Brune Holdings Pty Ltd [1973] 1 NSWLR 498 …. 15.2C Kakavas v Crown Melbourne Ltd (2013) 298 ALR 35 …. 19.1, 19.4C, 38.6C Kali Bakhsh Singh v Ram Gopal Singh (1913) 30 TLR 138 …. 18.4C Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 …. 24.6C Kaufmann v McGillicuddy (1914) 19 CLR 1 …. 27.8C Kelly v Solari (1841) 152 ER 24 …. 38.5C Kennedy v Vercoe (1960) 105 CLR 521 …. 5.2C Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 …. 15.5C Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 …. 24.8C Khoury v Khouri (2006) 66 NSWLR 241 …. 8.1, 8.3C Killarney Investments Pty Ltd v Macedonian Community of WA (Inc) [2007] WASCA 180 …. 30.1 King v Poggioli (1923) 32 CLR 222 …. 31.7C King Construction Company v Smith Electric Co 350 SW 2d 940 (1961) …. 17.5C Kiriri Cotton Co Ltd v Dewani [1960] AC 192 …. 38.5C Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 …. 15.4C KLDE Pty Ltd v Commissioner of Stamp Duties (Q) (1984) 155 CLR 288 …. 24.8C

Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 …. 38.6C Kocotis v D’Angelo (1957) 13 DLR (2d) 69 …. 26.3C Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 …. 11.4C Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 …. 24.1, 24.4C Koufos v C Czarnikow Ltd [1969] 1 AC 350 …. 29.5C, 29.6C, 29.8.2, 29.9C, 29.10C, 37.1, 37.5C Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205 …. 20.3C Krell v Henry [1903] 2 KB 740 …. 16.3C, 25.1, 25.2C, 25.5C, 25.6C L L Albert and Son v Armstrong Rubber Co 178 F 2d 182 (1949) …. 29.6C L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd (1956) 56 SR (NSW) 81; 73 WN (NSW) 9 …. 10.9C L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 …. 12.2C La Rosa v Nudrill Pty Ltd [2013] WASCA 18 …. 10.1, 10.8C Laird v Pim (1841) 151 ER 852 …. 24.7C, 30.5C Lampet’s Case (1612) 77 ER 994 …. 40.3C Lampleigh v Brathwait (1615) 80 ER 255 …. 6.4C Lamshed v Lamshed (1963) 109 CLR 440 …. 31.1, 31.6C Lancashire Loans Ltd v Black [1934] 1 KB 380 …. 18.3C Langton v Hughes (1813) 105 ER 222 …. 26.2C Larrinaga and Co Ltd v Societe Franco-Americaine des Phosphates de Medulla, Paris (1922) 29 Com Cas 1 …. 25.2C Last v Rosenfeld [1972] 2 NSWLR 923 …. 8.3C Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 …. 24.8C Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 …. 24.7C Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 …. 29.6C Lawrence v Fox 20 NY 268 (1859) …. 39.3C

Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244 …. 4.11.2 Leaf v International Galleries [1950] 1 All ER 693 …. 10.3C Lee v Jones (1864) 144 ER 194 …. 18.6C Leeds Industrial Co-operative Society Ltd v Slack [1924] AC 851 …. 33.2C Leeman v Stock [1951] Ch 941 …. 8.2C Legione v Hateley (1983) 152 CLR 406 …. 18.6C, 24.8C, 30.3C, 36.2C, 38.6C Les Affréteurs Réunis Société Anonyme v Leopold Walford (London) Ltd [1919] AC 801 …. 39.3C L’Estrange v F Graucob Ltd [1934] 2 KB 394 …. 10.4C, 10.5C Lewery v Salvation Army in Canada (1993) 104 DLR (4th) 449 …. 7.5C Lewis v Averay [1971] 3 All ER 907 …. 16.6C — v — [1972] 1 QB 198 …. 16.6C Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 …. 5.3C Lindner v Murdock’s Garage (1950) 83 CLR 628 …. 27.1, 27.6C, 27.7C Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 …. 31.6C Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 …. 38.6C Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 …. 37.4C Llanelly Railway and Dock Co v London and North Western Railway Co (1875) LR 7 HL 550 …. 23.2C Lloyd v Collett (1793) 29 ER 992 …. 31.6C Lloyd’s v Harper (1880) 16 Ch D 290 …. 39.2C, 39.3C Lloyds Bank v Bundy [1975] 1 QB 326 …. 19.3C Lloyds Bank Ltd, Re; Bomze and Lederman v Bomze (1931) 1 Ch 289 …. 18.5C London and River Plate Bank v Bank of Liverpool [1896] 1 QB 7 …. 38.6C London General Omnibus Co Ltd v Holloway [1912] 2 KB 72 …. 18.6C Longlands Farm, Re [1968] 3 All ER 552 …. 23.3C Lord Elphinstone v Monkland Iron and Coal Co (1886) 11 App Cas 332 …. 30.2C, 30.3C Lord Gerard’s Case (1581) Lincoln’s Inn MS Misc 361, fol 2IV …. 2.5E Louinder v Leis (1982) 149 CLR 509 …. 23.3C, 24.1, 24.5C

Louth v Diprose (1992) 175 CLR 621 …. 19.1, 19.4C, 19.5C Love v Amalgamated Society of Lithographic Printers (1912) 2 SLT 50 …. 39.3C Low v Bouverie [1891] 3 Ch 82 …. 10.5C Lowry v Bourdieu (1780) 99 ER 299 …. 38.5C Lukin v Lovrinov (unreported, SASC, Perry J, 9 April 1998) …. 23.5C Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 …. 38.1, 38.3C, 38.6C Lumley v Gye (1853) 118 ER 749 …. 32.2.3, 37.6C — v — (1854) 23 LT 66 …. 32.2.3 — v Wagner (1852) 42 ER 687 …. 32.1, 32.2C, 32.3C, 32.4C Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 …. 24.2C, 24.4C Lunn v Thornton (1845) 135 ER 587 …. 40.3C Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 …. 23.2C Lysaght v Edwards (1876) 2 Ch D 499 …. 24.8C M Macbryde v Weekes (1856) 52 ER 1214 …. 24.5C Macdonald v Longbottom (1859) 120 ER 1177 …. 12.2C Mackay v Dick (1881) 6 App Cas 251 …. 11.4C, 26.6C Mackreth v Marlar (1786) 29 ER 1156 …. 24.8C Maddison v Alderson (1883) 8 App Cas 467 …. 8.3C, 36.2C Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 …. 12.3C Mahmoud and Ispahani, Re [1921] 2 KB 716 …. 26.1, 26.2C Mahoney v Lindsay (1980) 33 ALR 601 …. 24.7C Mainprice v Westley (1865) 122 ER 1250 …. 4.4C Mainstream Properties v Young [2008] 1 AC 1 …. 37.6C Malhotra v Choudhury [1980] Ch 52 …. 33.2C Malik v Bank of Credit and Commerce International SA (in compulsory liquidation) [1998] AC 20 …. 11.4C Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2

Lloyd’s Rep 76 …. 5.3C Manchester Trust v Furness [1895] 2 QB 539 …. 19.4C Mander Pty Ltd v Clements (2005) 30 WAR 46 …. 34.2C Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521 …. 5.5C Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 …. 25.2C, 25.3C Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 …. 15.1, 15.4C, 15.5C Marler v Wilmer (1539) King’s Bench 27/1111, m 64 …. 2.5E Marles v Philip Trant & Sons [1964] 1 QB 29 …. 26.4C Marminta Pty Ltd v French [2003] QCA 541 …. 23.5C Marquis of Townshend v Stangroom (1801) 31 ER 1076 …. 34.2C Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556 …. 23.2C Maskell v Horner [1915] 3 KB 106 …. 17.2C Maslen v Perpetual Executor Trustees …. 23.5C Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 …. 27.6C Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 …. 26.6C Masters v Cameron (1954) 91 CLR 353 …. 5.1, 5.5C, 5.6C, 7.5C Matthews v Kuwait Bechtel Corporation [1959] 2 QB 57 …. 37.4C Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 …. 36.2C Maynard v Goode (1926) 37 CLR 529 …. 23.3C Mayo v W & K Holdings (NSW) Pty Ltd (in liq) [2015] NSWCA 119 …. 34.3C McArdle (dec’d), Re [1951] 1 Ch 669 …. 40.3C McArthur v Stern (1986) 5 NSWLR 538 …. 24.8C McBride v Sandland (1918) 25 CLR 69 …. 8.3C McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 …. 12.3C McCathie v McCathie [1971] NZLR 58 …. 36.3C McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 …. 10.8C McDermott v Black (1940) 63 CLR 161; [1940] HCA 4 …. 23.1, 23.4C, 23.5C

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 …. 27.8C, 30.1, 30.5C — v McMullen (1908) 25 WN (NSW) 142 …. 31.7C McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Ltd [1919] AC 548 …. 27.7C McFarlane v Daniell (1938) 38 SR (NSW) 337 …. 28.6C McIntyre v Nemesis DBK Ltd [2009] NZCA 329 …. 17.2.2 McNally v Waitzer [1981] 1 NSWLR 294 …. 24.5C McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 …. 16.1, 16.2C, 16.7C, 29.6C McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 …. 15.3C Measures v Measures Brothers Ltd [1910] 2 Ch 248 …. 27.8C Mehmet v Benson (1965) 113 CLR 295 …. 31.1, 31.7C, 31.7.2 Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553 …. 24.7C Mihalis Angelos, The [1971] 1 QB 164 …. 29.6C Mildmay v Standysh [1584] 1 Rep 175; (1584) 76 ER 379 …. 2.5E Miller v Miller (2011) 242 CLR 446 …. 26.6C Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 …. 15.2C Mitchel v Reynolds (1711) 24 ER 347 …. 27.5C Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 …. 39.3.3 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 …. 4.1, 4.8C Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 …. 29.10C Mondel v Steel (1841) 151 ER 1288 …. 22.3C Moore v Blake (1808) 1 Ball & B 62 …. 31.6C — v — (1816) 3 ER 1147 …. 31.6C, 31.7C — v Morgan (1900) 21 LR (NSW) Eq 158 …. 23.5C Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225 …. 24.7C Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 ….

11.3C Morgan v Beeby [1968] 2 NSWR 609 …. 24.5C Morrison v Coast Finance Ltd (1965) 55 DLR (2d) 710 …. 19.3C Moses v Macferlan (1760) 97 ER 676 …. 38.6C Moss v Elphick [1910] 1 KB 846 …. 23.5C Muckleston v Brown (1801) 31 ER 934 …. 28.5C Mulvenna v Royal Bank of Scotland plc [2003] EWCA Civ 1112 …. 29.10C Mumford v Gething (1859) 141 ER 834 …. 27.6C Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 …. 15.4C Munro v Finlinson (1903) 116 LT Journal 109 …. 33.2C Muschinski v Dodds (1985) 160 CLR 583 …. 38.2C Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 …. 5.6C Muskham Finance Ltd v Howard [1963] 1 QB 904 …. 16.8C Mutual Pools & Staff Pty Ltd v Commonwealth …. 38.6C N National Australia Bank Ltd v Garcia (1996) 39 NSWLR 577 …. 18.6C National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 …. 25.2C National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 …. 38.6C National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 …. 38.7.2, 40.4.2 National Phonograph Co Ltd v Edison-Bell Consolidated Phonograph Co Ltd [1908] 1 Ch 335 …. 37.6C Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 …. 24.5C Neill v Heavens (1953) 89 CLR 1 …. 8.2C Nelson v Dahl (1879) 12 Ch D 568 …. 11.5C — v Nelson (1995) 184 CLR 538 …. 28.1, 28.2C, 28.3C, 34.3C New South Wales Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 …. 34.2C

New Zealand Shipping Co v Société des Ateliers et Chantiers de France [1919] AC 1 …. 26.6C New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 …. 4.13C, 39.1, 39.4C Newbigging v Adam (1886) 34 Ch D 582 …. 35.2C Newman v Gybbe (1549) King’s Bench 27/1152, m 135 …. 2.5E Neylon v Dickens [1987] 1 NZLR 402 …. 33.1, 33.3C Nicholas v Thompson [1924] VLR 554 …. 14.1, 14.6C Nickoll v Ashton [1901] 2 KB 126 …. 25.5C Nielsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 …. 15.2C Niesmann v Collingridge (1921) 29 CLR 177 …. 5.5C Nocton v Lord Ashburton [1914] AC 932 …. 37.4C Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 …. 27.1, 27.3C, 27.5C, 27.6C, 27.7C Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 …. 38.6C, 40.1, 40.3C — v Moore (1549) King’s Bench 27/1149, m 117 …. 2.5E North Ocean Shipping Company Ltd v Hyundai Construction Company Ltd [1979] 1 QB 705 …. 6.5C, 17.1, 17.5C Norwich Winterthur Insurance v Con-Stan Industries of Australia [1983] 1 NSWLR 461 …. 11.5C Notcutt v Universal Equipment Ltd Co (London) [1986] 1 WLR 641 …. 25.3C Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 …. 11.3C O Obacelo Pty Ltd v Taveraft Pty Ltd (1986) ATPR 40-703 …. 15.2C OBG Ltd v Allan [2008] 1 AC 1 …. 37.1, 37.6C Occidental Worldwide Investment Corp v Skibs A/S Avanti (The ‘Siboen’ and The ‘Sibotre’) [1976] 1 Lloyd’s Rep 293 …. 17.5C Ocean Tramp Tankers Corporation v V/O Sovfracht (The Eugenia) [1964] 2 QB 226 …. 25.3C

Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 …. 10.4C O’Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 …. 35.5C O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 …. 30.1, 30.4C Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) …. 30.4C — v — [2010] 1 AC 696 …. 30.4C Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 …. 27.8C — v Earl Vane (1867) LR 2 QB 275; LR 3 QB 272 …. 33.2C Old UGC Inc v Industrial Relations Commission of NSW (2006) 225 CLR 274 …. 21.3C Oliver Hume (Australia) Pty Ltd v Land Source Australia Pty Ltd [2015] VSC 77 …. 34.3C Olley v Marlborough Court [1949] 1 KB 532 …. 10.5C, 10.7C Olsson v Dyson (1969) 120 CLR 365 …. 39.3C oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 …. 25.1, 25.3C O’Rorke v Bolingbroke (1877) 2 App Cas 814 …. 19.3C Orr v Ford (1989) 167 CLR 316 …. 26.6C Osborn v McDermott [1998] 3 VR 1 …. 23.5C Oscar Chess Ltd v Williams [1957] 1 All ER 325; [1957] 1 WLR 370 …. 10.1, 10.2C, 10.3C O’Sullivan v Management Agency Ltd [1985] QB 428 …. 35.4C Oun v Ahmad [2007] EWCA Civ 412 …. 34.3C Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) (No 1) [1961] AC 388 …. 15.5C Owen and Gutch v Homan (1853) 4 HL Cas 997; 10 ER 752 …. 19.3C, 19.4C Owtrede v Whyte (1546) King’s Bench 27/1138, m 24d …. 2.5E P P J Berry Estates Pty Ltd v Mangalore Homestead Pty Ltd (1984) 6 ATPR 40-459

…. 15.2C Pacaya Rubber & Produce Co Ltd, Re [1914] 1 Ch 542 …. 14.2C Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 …. 34.2C Pacific Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 …. 40.1 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569 …. 30.1, 30.3C Pacol Ltd v Trade Lines Ltd [1982] 1 Lloyd’s Rep 456 …. 36.2C Page One Records Ltd v Britton [1967] 3 All ER 822 …. 32.1, 32.4C Palmer v Lark [1945] Ch 182 …. 24.7C — v Moore [1900] AC 293 …. 23.5C — v Temple (1839) 112 ER 1304 …. 30.5C Public Works Commissioner v Hills [1906] AC 368 …. 30.2C Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581 …. 37.3C Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 All ER 470 …. 38.3C Pao On v Lau Yiu Long [1980] AC 614 …. 6.1, 6.4C, 6.5C, 17.2C, 17.4C Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 …. 29.1, 29.2C Parana, The (1877) 2 PD 118 …. 37.5C Parker v Clark [1960] 1 All ER 93 …. 7.3C — v South Eastern Railway Co (1877) 2 CPD 416 …. 10.1, 10.4C, 10.6C Parkin v Thorold (1852) 51 ER 698 …. 24.5C Parkinson v College of Ambulance Ltd and Harrison [1925] 2 KB 1 …. 27.2E Pascoe v Turner [1979] 2 All ER 945 …. 36.2C Pasley v Freeman (1798) 100 ER 450 …. 37.2C Patel v Mirza [2016] 3 WLR 399 …. 34.3C Pattinson v Luckley (1875) LR 10 Ex 330 …. 38.4C Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 …. 38.1, 38.2C, 38.3C, 38.5C, 39.3C Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 …. 5.1,

5.6C Payne v Cave [1775–1802] All ER Rep 492 …. 4.4C Paynter v James (1867) LR 2 CP 348 …. 27.8C Pearce v Brooks (1866) LR 1 Ex 213 …. 28.4C — v Watts (1875) LR 20 Eq 492 …. 5.3C Peek v Derry (1887) 37 Ch D 541 …. 15.5C Pepper v Hart [1993] AC 593 …. 12.4C Percy v Board of National Mission of the Church of Scotland [2006] 2 AC 28 …. 7.5.2, 7.5.3 Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 …. 40.3C Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186 …. 11.4C Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26,639 …. 20.3C Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 …. 23.1, 23.3C Perri v Coolangatta Investments Pty Ltd (Supreme Court of NSW (Court of Appeal), unreported; 5 August 1981) …. 24.5C Petelin v Cullen (1975) 132 CLR 355 …. 10.4C, 16.8C Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 …. 24.7C Petera Pty Ltd v EAJ Pty Ltd (1985) ATPR 40-605 …. 15.2C Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574 …. 27.7C Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 …. 4.3C — v — [1953] 1 QB 401 …. 4.1, 4.3C Philips v Ward [1956] 1 All ER 874 …. 29.3C Phillips v Brooks Ltd [1919] 2 KB 243 …. 16.6C Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 …. 12.1 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 …. 10.4C, 13.2C, 27.8C

Phyllyp v Heeth (1540) KB 27/1116, m 23d …. 2.5E Pilkington ACI (Operations) Pty Ltd, Ex parte (1978) 142 CLR 113 …. 15.2C Pinnel’s Case (1602) 77 ER 237 …. 6.1, 6.6C Pirie v Saunders (1961) 104 CLR 149 …. 8.1, 8.2C Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 …. 7.5C Polish Club Ltd v Gnych (2014) 86 NSWLR 650 …. 26.6C Pordage v Cole (1669) 85 ER 449 …. 27.8C Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1978) 139 CLR 231 …. 39.3C — v — (1980) 144 CLR 300 …. 39.3C Potts v Miller (1940) 64 CLR 282; 40 SR (NSW) 351 …. 15.5C Prenn v Simmonds [1971] 1 WLR 1381 …. 12.2C, 12.4C, 34.2C President of the Methodist Conference v Parfitt [1984] QB 368 …. 7.5.2 Preston v President of the Methodist Conference [2013] 2 AC 163; [2013] 4 All ER 477 …. 7.5.4 Price v Price (1852) 42 ER 571 …. 18.3C Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542 …. 9.1, 9.4C Project 28 Pty Ltd (formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240 …. 38.7.2, 40.4.2 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 …. 26.6C Property and Bloodstock Ltd v Emerton [1968] 1 Ch 94 …. 23.3C Provident Capital Ltd v Papa [2013] NSWCA 36 …. 20.1, 20.3C Pukallus v Cameron (1982) 180 CLR 447 …. 34.2C Putsman v Taylor (1927) 1 KB 637 …. 28.6C Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd (1980) 31 ALR 73 …. 15.3C Pynnok v Clopton (1547) King’s Bench 27/1141, m 79 …. 2.5E Pyrry v Appowell (1545) King’s Bench 27/1134, m 67d …. 2.5E

Q Quinn v Overland [2010] FCA 799 …. 31.4.2 — v Leathem [1901] AC 495 …. 37.6C R R v Clarke (1927) 40 CLR 227 …. 4.1, 4.9C — v Croydon Justices; Ex parte Dean [1993] 3 All ER 129 …. 1.2E — v Federal Court of Australia; Ex parte Pilkington ACI (Operations) Pty Ltd (1978) 142 CLR 113 …. 15.3C R & H Hall Ltd v WH Pim (Junior) & Co Ltd (1927) 32 Com Cas 144 …. 37.5C — v — [1928] All ER 763 …. 29.9C Radaich v Smith (1959) 101 CLR 209 …. 26.6C Radford v De Froberville [1978] 1 All ER 33 …. 29.3C, 29.7C, 33.2C Raineri v Miles [1981] AC 1050 …. 24.5C Ramsden v Dyson (1866) LR 1 HL 129 …. 36.2C Rannie v Irvine (1894) 135 ER 393 …. 27.5C Rawson v Hobbs (1961) 107 CLR 466 …. 24.7C Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570; [1976] 1 WLR 989 …. 12.2C, 34.2C Redgrave v Hurd (1881) 20 Ch D 1 …. 14.1, 14.4C, 14.5C, 15.2C Reese River Silver Mining Company v Smith (1869) LR 4 HL 64 …. 14.5C, 35.2C Regent v Millett (1976) 133 CLR 679 …. 8.3C Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 …. 23.3C Rely-a-Bell Burglar & Fire Alarm Co Ltd v Eisler [1926] Ch 609 …. 32.2C Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 …. 5.4C, 11.6C Rent v Danyell (1549) King’s Bench 27/1150, m 104 …. 2.5E Reynolds v Fury [1921] VLR 14 …. 30.5C Rhodes v Bate (1866) 1 Ch App 252 …. 18.2C Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77 …. 15.2C

Richards v Bartlet (1584) 74 ER 17 …. 2.5E Richardson, Spence & Co v Rowntree [1894] AC 217 …. 10.4C Riches v Hogben [1985] 2 Qd R 292 …. 38.6C Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 …. 27.1, 27.8C Ricochet Pty Ltd v Equity Trustees Executors and Agency Co Ltd (1993) 41 FCR 229 …. 15.5C Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 …. 30.3C, 30.4C River Wear Commissioners v Adamson (1877) 2 App Cas 743 …. 12.2C, 34.2C Riverlate Properties Ltd v Paul [1975] Ch 133 …. 16.7C, 34.4C Robert A Munro & Co v Meyer [1930] 2 KB 312 …. 16.7C Roberts v Gray [1913] 1 KB 520 …. 9.1, 9.2C, 9.4C Robertson v Wait (1853) 155 ER 1360 …. 39.3C Robinson v Harman (1848) 154 ER 363 …. 29.1, 29.6C, 29.7C, 29.10C Robophone Facilities Ltd v Blank [1966] 3 All ER 128 …. 29.9C Rock Refrigeration Ltd v Jones & Anor [1997] 1 All ER 1 …. 27.8C Rogers v Booth [1937] 2 All ER 751 …. 7.5C Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1982] Ch 478 …. 9.5C — v — [1986] Ch 246 …. 9.1, 9.5C Rose v Pim [1953] 2 QB 450 …. 34.2C — v Watson (1864) 33 LJ Ch (NS) 385 …. 24.8C Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 …. 24.6C Rossiter v Miller (1878) 3 App Cas 1124 …. 5.5C Routledge v Grant (1828) 130 ER 920 …. 4.6C — v McKay [1954] 1 All ER 855 …. 10.3C Rover International Ltd v Cannon Film Ltd [1989] 3 All ER 423 …. 38.5C Rowland v Divall (1923) 2 KB 500 …. 29.5C, 38.5C Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 …. 38.6C Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002)

186 ALR 289 …. 7.5C Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 …. 5.4C Royal Exchange Assurance v Hope [1928] Ch 179 …. 39.3C Ruddenklau v Charlesworth [1925] NZLR 161 …. 30.5C Rugg v Minett (1814) 103 ER 985 …. 25.6C Rural Municipality of Storthoaks v Mobil Oil Canada Ltd [1976] 2 SCR 147 …. 38.6C Rutter v Palmer [1922] 2 KB 87 …. 13.3C Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 …. 29.1, 29.7C Ryder v Frohlich [2004] NSWCA 472 …. 23.5C Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 …. 34.1, 34.2C, 34.3C S Sadler v Evans (1766) 98 ER 34 …. 38.6C Sandwell Park Colliery Co, Re; Field v The Company [1929] 1 Ch 277 …. 24.5C Sankey v Whitlam (1978) 142 CLR 1 …. 27.4C Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 …. 24.4C Sargent v ASL Developments Ltd (1974) 131 CLR 634 …. 15.2C, 24.1, 24.6C Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA [1981] 1 Lloyd’s Rep 175 …. 29.6C, 29.10C Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 …. 16.8C — v Edwards [1987] 1 WLR 1116 …. 27.2E Sawyer & Vincent v Window Brace Ltd [1943] KB 32 …. 38.5C Scaffidi v Perpetual Trustees Victoria Ltd [2011] WASCA 159 …. 23.5C Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 …. 25.2C Scarf v Jardine (1882) 7 App Cas 345 …. 35.5C Scarfe v Morgan (1838) 150 ER 1430 …. 28.4C, 28.5C Schebsman, Re [1944] Ch 83 …. 39.3C

Scott v Brown, Doering, McNab & Co [1892] 2 QB 724 …. 28.4C, 28.4C — v English [1947] VicLawRp 67; [1947] VLR 445 …. 23.5C — v Rania [1966] NZLR 527 …. 23.3C Scottish Equitable plc v Derby [2001] 3 All ER 818 …. 38.6C Scowby, Re; Scowby v Scowby [1897] 1 Ch 741 …. 33.3C Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 …. 39.4C Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 …. 5.4C, 11.3C, 11.4C, 26.6C Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 …. 5.4C, 15.5C, 38.6C Sent v Jet Corp of Australia Pty Ltd (1986) 160 CLR 540 …. 15.4C Seton v Slade (1802) 32 ER 108 …. 24.5C, 24.8C Shadwell v Shadwell (1860) 142 ER 62 …. 7.3C Sharland v Sharland [2016] 1 All ER 671 …. 37.3C Shaw v New South Wales (2012) 219 IR 87 …. 11.4C Shears v Mendeloff (1914) 30 TLR 342 …. 9.4C Shevill v Builders Licensing Board (1982) 149 CLR 620 …. 24.4C Shiloh Spinners Ltd v Harding [1973] AC 691 …. 24.8C, 31.5C Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 …. 11.2C Shogun Finance Ltd v Hudson [2004] 1 AC 919 …. 16.1, 16.6C Simpson v Vaughan (1739) 26 ER 415 …. 34.2C Sinclair v Brougham [1914] AC 398 …. 25.6C Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 …. 5.5C Singh v Ali [1960] AC 167 …. 28.1, 28.5C Sion v NSW Trustee & Guardian [2013] NSWCA 337 …. 7.6C Skeate v Beale (1840) 113 ER 688 …. 17.5C Slade’s Case (1602) 76 ER 1072 …. 2.1, 2.2E, 2.4C Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co (1953) 1 WLR 1468 …. 13.5C Smith v Chadwick (1884) 9 AC 187 …. 14.3C — v Hamilton [1951] Ch 174 …. 24.5C

— v Hughes (1871) LR 6 QB 597 …. 16.5C, 16.6C, 16.7C — v Kay (1859) 7 HL Cas 750; 11 ER 299 …. 14.6C, 37.3C — v Land and House Property Corporation (1885) 28 Ch D 7 …. 14.1, 14.4C — v Mawhood (1845) 153 ER 552 …. 26.3C — v William Charlick Ltd (1924) 34 CLR 38 …. 17.5C Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board [1949] 2 KB 500 …. 39.3C Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 …. 15.5C Snoid v Handley (1981) 38 ALR 383 …. 15.3C Sobell v Boston (1975) 1 WLR 1587 …. 23.5C Solle v Butcher [1949] 2 All ER 1107 …. 10.3C, 16.5C — v — [1950] 1 KB 671 …. 16.1, 16.2C, 16.4C, 16.7C South Australia v McDonald (2009) 104 SASR 344 …. 11.4C — v The Commonwealth (1962) 108 CLR 130 …. 7.5C South Australian Cold Stores Ltd v Electricity Trust of South Australia (1957) 98 CLR 65 …. 38.5C South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128 …. 6.5C South Wales Miners’ Federation v Glamorgan Coal Co Ltd [1905] AC 239 …. 37.6C, 37.7C Southwark, Diocese of v Coker [1998] ICR 140 …. 7.5C, 7.5.2 Spenborough Urban District Council’s Agreement, Re [1968] Ch 139 …. 23.2C Spence v Crawford [1939] 3 All ER 271 …. 35.2C Spencer v Harding (1870) LR5CP 561 …. 4.5C St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 …. 26.1, 26.3C, 26.4C, 28.2C Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2003] 1 All ER 173 …. 37.3C Stanford v Roberts [1901] 1 Ch 440 …. 37.7C Starsin Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 ….

12.4C State Bank of New South Wales v Commonwealth Savings Bank of Australia (1985) 60 ALR 73 …. 23.2C State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 …. 10.1, 10.9C, 36.2C Steadman v Steadman [1976] AC 536 …. 8.3C Steel Wing Co Ltd, Re [1921] 1 Ch 349 …. 40.3C Steele v Tardiani (1946) 72 CLR 386 …. 38.3C Stephens v Board of Education of the City of Brooklyn 79 NY 183 (1879) …. 38.6C Sterling v Trade Practices Commission (1981) 35 ALR 59 …. 15.3C Stern v McArthur (1988) 165 CLR 489 …. 24.8C Stevenson, Jaques & Co v McLean (1880) 5 QBD 346 …. 4.1, 4.6C Stickney v Keeble [1915] AC 386 …. 24.5C, 24.7C Stilk v Myrick (1809) 170 ER 1168 …. 6.5C Stone v Chappel [2017] SASCFC 72 …. 29.7.3 — v Withepoole (1588) Owen 94; 74 ER 924 …. 2.5E Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161 …. 15.3C Stuart Pty Ltd v Condor Commercial Pty Ltd [2006] NSWCA 334 …. 29.1, 29.9C Sudbrook Trading Ltd v Eggleton (1983) 1 AC 444 …. 5.2C Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 …. 13.2C Summergreene v Parker (1950) 80 CLR 304 …. 5.5C Summers v Commonwealth (1918) 25 CLR 144; [1918] HCA 33 …. 23.5C, 24.7C Sumpter v Hedges [1898] 1 QB 673 …. 38.1, 38.3C, 38.4C Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 …. 23.3C Svanosio v McNamara (1956) 96 CLR 186 …. 16.7C Swain v Law Society [1983] 1 AC 598 …. 39.1, 39.3C

T Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 …. 29.1, 29.7C Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 …. 15.1, 15.3C Tailby v Official Receiver (1888) 13 App Cas 523 …. 40.3C Tait v Bonnice [1975] VR 102 …. 23.3C Tan Hung Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178 …. 22.4C Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 …. 19.4C, 24.1, 24.8C Tappenden v Randall (1801) 126 ER 1388 …. 27.2E Tatham v Huxtable (1950) 81 CLR 639 …. 39.3C Tayloe v Merchants’ Fire Insurance Co 50 US (9 How) 390 (1850) …. 4.6C Taylor v Bhail [1996] CLC 377 …. 27.2E — v Caldwell (1863) 122 ER 309 …. 16.2C, 25.1, 25.4C, 25.5C, 25.6C — v Crowland Gas and Coke Co (1854) 156 ER 455 …. 26.3C — v Foster (1599) 78 ER 1034 …. 2.1, 2.3C — v Johnson (1983) 151 CLR 422 …. 5.6C, 16.1, 16.7C Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 …. 36.2C TC Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd (1963) 37 ALJR 289 …. 29.6C TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 …. 29.6C Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565 …. 15.5C Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 …. 12.3C Thackwell v Barclays Bank plc [1986] 1 All ER 676 …. 27.2E Theodore v Mistford Pty Ltd (2005) 221 CLR 612 …. 8.3C Thirkell v Cambi [1919] 2 KB 590 …. 8.2C Thomas v Monaghan [1975] 1 NZLR 1 …. 24.5C Thomas Bates Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 …. 34.4C

Thomas Brown and Sons Ltd v Fazal Deen (1962) 108 CLR 391 …. 28.1, 28.6C Thompson v De Lissa (unreported, NSWSC, Powell J, 16 February 1990) …. 23.5C — v Palmer (1933) 49 CLR 507 …. 24.7C, 36.2C Thorne v Motor Trade Association [1937] AC 797 …. 17.2C Thornett v Haines (1846) 153 ER 892 …. 4.4C Thornley v Tilley (1925) 36 CLR 1 …. 11.5C Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 …. 10.1, 10.7C Tilley v Thomas (1867) LR 3 Ch App 61 …. 24.5C Tinsley v Milligan [1992] Ch 310 …. 27.2E, 28.3C — v — [1994] 1 AC 340 …. 27.2E, 28.2C, 34.3C Tito v Waddell (No 2) [1977] Ch 106 …. 31.5C Todorovic v Waller (1981) 150 CLR 402 …. 29.3C Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 …. 10.1, 10.4C, 34.2C Tolnay v Criterion Film Production Ltd [1936] 2 All ER 1625 …. 24.2C Tomlinson (A) (Hauliers) Ltd v Hepburn [1966] AC 451 …. 39.3C Tonkin v Cooma-Monaro Shire Council (2006) 145 LGERA 48 …. 26.6C Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699 …. 20.3C Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761; [1955] 2 All ER 657 …. 36.3C Torkington v Magee [1902] 2 KB 427 …. 40.1, 40.2C Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106 …. 37.6C Torrance v Bolton (1872) 8 Ch App 118 …. 16.5C, 16.7C Townsend v Persistence Holdings Ltd [2008] UKPC 15 …. 27.2E Tozer Kemsley & Millbourn (A/asia) Pty Ltd v Collier’s Interstate Transport Service Ltd (1956) 94 CLR 384 …. 13.5C Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 …. 24.2C, 24.4C Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 …. 12.3C

Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia [2007] 2 Lloyd’s Rep 555 …. 29.10C Transfield Shipping Inc v Mercator Shipping Inc [2007] 1 Lloyd’s Rep 19 …. 29.10C — v — [2009] 1 AC 61 …. 29.1, 29.10C Transworld Oil Ltd v North Bay Shipping Corporation (The Rio Claro) [1987] Lloyd’s Rep 173 …. 29.10 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 …. 5.4C Trendtex Trading Corporation v Credit Suisse [1980] QB 629 …. 40.4C — v — [1982] AC 679 …. 40.1, 40.4C Tribe v Tribe [1996] Ch 107 …. 27.2E TriContinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 …. 22.4C Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 …. 39.3C — v — (1988) 165 CLR 107 …. 39.1, 39.3C Trollope & Colls Ltd v Atomic Power Constructions Ltd [1962] 3 All ER 1035 …. 4.13C Tropical Traders v Groonan (1964) 37 ALJR 497 …. 35.5C Truong v Lam [2009] WASCA 217 …. 23.5C Turfote v Pytcher (1543) King’s Bench 27/1130, m 104 …. 2.5E Turner v The Civil Service Supply Association [1926] 1 KB 50 …. 13.3C Turvey v Dentons (1923) Ltd [1953] 1 QB 218 …. 38.5C Tweddle v Atkinson (1861) 121 ER 762 …. 39.3C Twinsectra Ltd v Yardley [2002] 2 AC 164 …. 5.4C Tyll v Brockhouse (1548) King’s Bench 27/1147, m 103d …. 2.5E U Unilever plc v Chefaro Proprietaries Ltd [1994] FSR 135 …. 37.6C Union Bank of Australia Ltd v Puddy [1949] VLR 242 …. 18.6C — v Whitelaw [1906] VLR 711 …. 19.3C

Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 …. 24.8C Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 …. 18.1, 18.2C United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 …. 5.1, 5.4C United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 …. 24.5C United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 …. 5.4C Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 …. 24.3C, 24.7C Universe Tankships Inc of Monrovia v International Transport Workers Federation [1981] ICR 129 …. 17.2C — v — [1983] 1 AC 366 …. 17.1, 17.2C, 17.4C Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 …. 5.4C Utopia Financial Services Pty Ltd v Financial Ombudsman Service Ltd [2012] WASC 279 …. 31.2.3 V Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 …. 35.1, 35.4C Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 …. 39.2C, 39.3C Veivers v Cordingley [1989] 2 Qd R 278 …. 4.8C Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 …. 29.1, 29.8C, 29.10C Victorian Daylesford Syndicate Ltd v Dott [1905] 2 Ch 624 …. 26.3C, 26.5C Viles v Viles [1939] SASR 164 …. 39.2C, 39.3C Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 …. 26.3C, 26.4C, 28.2C Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284 …. 5.5C Vroon BV v Foster’s Brewing Group Ltd [1994] VR 32 …. 7.6C W

W J Alan Ltd v El Nasr Export and Import Co [1972] 2 QB 189 …. 36.3C W K Witt (WA) Pty Ltd v Metters Ltd [1967] WAR 10 …. 23.2C W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR 572 …. 15.2C Wakefield v Newbon (1844) 115 ER 107 …. 17.5C Walford v Miles [1992] 2 AC 128 …. 3.5E, 5.4C Walker v Bradford Old Bank Ltd (1884) 12 QBD 511 …. 40.3C — v Melham [2007] NSWSC 264 …. 23.5C Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 …. 23.5C Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 …. 8.3C, 24.7C, 36.1, 36.2C, 36.2.4, 36.4C, 39.3C Ward v Byham [1956] 2 All ER 318 …. 6.5C Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 …. 15.4C Warlow v Harrison [1843–60] All ER Rep 620 …. 4.4C Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209 …. 32.1, 32.2C Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 …. 33.1 Watkins v Combes (1922) 30 CLR 180 …. 19.3C Watson v Burton [1956] 3 All ER 929 …. 35.5C Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 …. 15.4C Webb’s Case (1577) 74 ER 763 …. 2.5E Webster v Bosanquet [1912] AC 394 …. 30.2C Wedgwood Coal and Iron Co, Re; Anderson’s Case (1877) 7 Ch D 75 …. 10.11C Weily v Williams (1895) 16 LR (NSW) Eq 190 …. 33.1 Weitmann v Katies Ltd (1977) 29 FLR 336 …. 15.2C, 15.3C Weld-Blundell v Stephens (1919) 1 KB 520 …. 27.4C Werrin v The Commonwealth (1938) 59 CLR 150 …. 38.5C, 38.7C West v AGC (Advances) Ltd (1986) 5 NSWLR 610 …. 20.2C — v Houghton (1879) 4 CPD 197 …. 39.2C, 39.3C — v Sydney City Council (1964) 82 WN (Pt 1) (NSW) 139 …. 13.5C Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604

…. 12.2.2 Westland Savings Bank v Hancock [1987] 2 NZLR 21 …. 34.2C Westralian Farmers Cooperative Ltd v Southern Meat Packers Ltd [1981] WAR 241 …. 39.3C Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361 …. 27.8C Wetherell v Jones (1832) 110 ER 82 …. 26.3C, 26.4C Whelpdale’s Case (1604) 77 ER 239 …. 10.4C White v Australia & New Zealand Theatres Ltd (1943) 67 CLR 266 …. 24.2C, 29.6C, 32.3C — v Damon (1800) 7 Ves 30 …. 31.3C — v John Warwick & Co Ltd [1953] 2 All ER 1021; [1953] 1 WLR 1285 …. 13.1, 13.4C, 39.3C White & Carter (Councils) Ltd v McGregor [1962] AC 413 …. 4.5C, 30.1, 30.6C Whiten v Pilot Insurance Co (2002) 209 DLR (4th) 257 …. 29.2C Whitlock v Brew (1968) 118 CLR 445 …. 5.1, 5.3C Whitwood Chemical Co v Hardman [1891] 2 Ch 416 …. 32.2C Wichals v Johns (1599) 78 ER 938 …. 2.2E Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 …. 18.6C — v Osborne (1915) 21 CLR 89 …. 27.1, 27.3C — v Verity (1871) LR 6 CP 206 …. 28.6C Willes v Glovers (1804) 127 ER 362 …. 14.2C Williams v Atlantic Assurance Co [1933] 1 KB 81 …. 40.3C — v Baltic Insurance Association of London Ltd [1924] 2 KB 282 …. 39.3C — v Lloyd (1628) 82 ER 95 …. 25.4C — v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 …. 6.1, 6.5C, 6.6C — v Williams [1957] 1 All ER 305 …. 6.5C Wills v Gibbs [2007] EWHC 3361 …. 34.3C Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 …. 39.3C, 39.4C — v Northampton and Banbury Junction Railway Co (1874) 9 Ch App 279 ….

39.2C Wilton v Farnworth (1948) 76 CLR 646 …. 10.4C Wiltshire v Marshall (1866) 14 LT 396 …. 19.2C Winchcombe Carson Trustee Co Ltd v Ball-Rand Pty Ltd [1974] 1 NSWLR 477 …. 24.5C Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 …. 23.2C Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363 …. 39.3.2 Withers v General Theatre Corporation (1933) 2 KB 536 …. 29.6C Wolverhampton Corporation v Emmons [1901] 1 KB 515 …. 31.5C Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571 …. 39.3C Woodhouse Ltd v Nigerian Produce Ltd [1972] AC 741 …. 36.3C Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666 …. 11.4C World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 …. 15.2C, 15.3C Worrall v British Railways Board (unreported, 29 April 1999) …. 27.2E Wroth v Tyler [1974] Ch 30 …. 33.2C Y Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 …. 26.1, 26.3C, 26.6C, 28.2C, 28.3C Yerkey v Jones (1939) 63 CLR 649 …. 18.1, 18.2C, 18.5C, 18.6C York Air Conditioning (A/asia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 …. 38.5C Yorke v Lucas (1985) 158 CLR 661 …. 28.3C Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 …. 12.4C Young v Queensland Trustees (1954) 99 CLR 560 …. 30.1 Z Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 …. 12.3C, 37.1, 37.7C

Zieme v Gregory [1963] VR 214 …. 23.3C Zurich Insurance Co plc v Hayward [2017] AC 142 …. 37.1, 37.3C

TABLE OF STATUTES References are to Introductions to Chapters, Extracts, and Comments to Extracts

COMMONWEALTH Australian Consumer Law …. 15.1, 21.1, 21.2.1 Ch 5 …. 15.1 s 18 …. 15.1 s 20 …. 19.1, 19.5C, 19.5.3 ss 21–22 …. 19.1 Australian Securities and Investments Commission Act 2001 …. 30.3C s 12DA …. 15.1 Banking Act 1959 Pt III, Div 2 …. 26.3C s 8 …. 26.3C s 9 …. 26.3C Competition and Consumer Act 2010 …. 21.1 Ch 2, Pt 2-3 …. 21.1 Pt IV …. 27.1 ss 23–28 …. 21.1 Sch 2 …. 15.1, 21.1 Corporations Act 2001 s 124 …. 9.5.2 s 125 …. 9.5.2 s 1041H …. 15.1 Defence Service Homes Act 1918 …. 28.2C s 29 …. 28.2C

s 30(1)(a) …. 28.2C s 30(1)(b) …. 28.2C Income Assessment Act 1936 s 261 …. 38.5C Insurance Contracts Act 1984 …. 39.3C s 48 …. 39.3C Judiciary Amendment Act 1984 …. 27.4C National Security (Exchange Control) Regulations …. 28.6C Proceeds of Crime Act 2002 …. 27.2E Sydney 2000 Games (Indicia and Images) Protection Act 1996 s 12 …. 37.7C s 43 …. 37.7C s 44 …. 37.7C s 45 …. 37.7C s 46 …. 37.7C Trade Practices Act 1974 …. 15.2C, 15.3C, 15.4C, 15.5C, 19.5C, 21.1, 21.2E Pt IIIA …. 21.2E Pt IV …. 15.4C, 15.5C Pt IVA …. 15.4C, 21.2E Pt IVB …. 15.5C Pt V …. 15.4C, 15.5C Pt V, Div 1 …. 21.2E Pt VI …. 15.4C s 2 …. 15.4C s 4K …. 15.4C s 51AA …. 15.4C, 19.1, 19.5C, 19.5.2, 19.5.3, 21.2E s 51AA(1) …. 19.5C s 51AB …. 19.5C, 21.2E s 51AC …. 15.5C, 19.5C s 52 …. 15.1, 15.2C, 15.3C, 15.4C, 15.5C, 15.6C, 21.2E

s 52(1) …. 15.3C, 15.4C s 53 …. 15.4C, 21.2E s 53(g) …. 15.4C s 76 …. 19.5C s 80 …. 15.4C s 82 …. 15.4C, 15.5C, 15.6C, 19.5C s 82(1) …. 15.4C, 15.5C s 84(2) …. 15.6C s 87 …. 15.2C, 15.4C, 15.6C s 87(1) …. 15.4C s 87(1A) …. 15.4C s 87(1C) …. 15.4C s 87(2) …. 15.4C s 87(2)(b) …. 15.4C s 87(2)(c) …. 15.4C Trade Practices Regulations 1974 …. 21.1 AUSTRALIAN CAPITAL TERRITORY Civil Law (Property) Act 2006 s 205 …. 40.1 Sale of Goods Act 1954 s 35(2) …. 24.4C NEW SOUTH WALES Builders Licensing Act 1971 s 45 …. 38.2C City and Suburban Electric Railways Act 1915 s 11 …. 25.2C Closer Settlement (Amendment) Act 1907 …. 27.3C Contracts Review Act 1980 …. 17.1, 20.1, 20.2C, 20.3C, 21.1, 21.2E

s 4 …. 20.3C s 6(1) …. 20.2C s 6(2) …. 20.1, 20.2C s 7 …. 20.1, 20.3C s 7(1) …. 20.2C s 9 …. 20.2C, 20.3C s 9(2) …. 20.2C s 9(2)(e) …. 20.2C s 9(2)(f) …. 20.2C s 9(2)(h) …. 20.2C s 9(4) …. 20.2C Conveyancing Act 1919 …. 24.4C s 12 …. 40.1 s 13 …. 24.4C, 24.5C s 54A …. 8.1, 8.2C, 8.3C s 54A(1) …. 8.1 s 54A(2) …. 8.1 Environmental Planning and Assessment Act 1979 s 149 …. 15.6C Frustrated Contracts Act 1978 …. 25.1 Industrial Arbitration Act 1940 s 88F …. 20.2C, 21.3C, 21.4C, 21.4.2 s 88F(1) …. 21.4C s 88F(2) …. 21.4C Industrial Relations Act 1996 …. 21.1, 21.3C s 7 …. 21.3C s 105 …. 21.1, 21.3C s 106 …. 21.1, 21.3C, 21.4.2 s 106(1) …. 21.3C s 106(5) …. 21.4.2

Liquor Act 2007 …. 26.6C s 92(1) …. 26.6C s 92(1)(c) …. 26.6C s 92(1)(d) …. 26.6C Local Government Act 1919 Pt XIIA …. 24.6C s 342AS …. 24.6C Real Property Act 1900 …. 24.6C Restraints of Trade Act 1976 …. 27.1 Sale of Goods Act 1923 s 34(2) …. 24.4C NORTHERN TERRITORY Law of Property Act 2000 s 182 …. 40.1 Sale of Goods Act s 34(2) …. 24.4C Water Act 1992 …. 28.3C s 14 …. 28.3C s 56 …. 28.3C s 56(1) …. 28.3C s 57 …. 28.3C s 57(1) …. 28.3C QUEENSLAND Equity Act 1867 s 62 …. 33.1 Property Law Act 1974 s 55 …. 39.3C s 55(1) …. 39.3C

s 55(2) …. 39.3C s 55(3)(d) …. 39.3C s 55(6)(c)(ii) …. 39.3C s 199 …. 40.1 Sale of Goods Act 1896 s 33(2) …. 24.4C SOUTH AUSTRALIA Law of Property Act 1936 s 15 …. 40.1 Sale of Goods Act 1895 s 31(2) …. 24.4C TASMANIA Conveyancing and Law of Property Act 1884 s 86 …. 40.1 Sale of Goods Act 1896 s 36(2) …. 24.4C VICTORIA Criminal Proceedings Act 1984 …. 27.4C Estate Agents Act 1980 …. 34.3C s 49A …. 34.3C s 49A(1) …. 34.3C s 50 …. 34.3C s 50(1) …. 34.3C s 97 …. 34.3C Fair Trading Act 1999 …. 30.3C Goods Act 1958 s 38(2) …. 24.4C Property Law Act 1958

s 134 …. 40.1 WESTERN AUSTRALIA Fair Trading Act 1987 …. 15.5C Partnership Act 1895 s 26 …. 23.5C s 32 …. 23.5C s 36 …. 23.5C s 37 …. 23.5C s 37(1) …. 23.5C s 37(2) …. 23.5C s 43 …. 23.5C s 43(a) …. 23.5C s 43(b) …. 23.5C s 44 …. 23.5C s 45 …. 23.5C s 46 …. 23.5C Property Law Act 1969 s 11 …. 39.3C s 11(2) …. 39.3C s 11(3) …. 39.3C s 20 …. 40.1 Sale of Goods Act 1895 s 31(2) …. 24.4C GERMANY German Civil Code s 343 …. 30.3C s 1121 …. 39.3C INTERNATIONAL

European Community Treaty art 81 …. 27.2E art 85 …. 27.2E Hague Rules …. 39.4C art III(6) …. 39.4C UNIDROIT Principles of International Commercial Contracts 2004 …. 24.4C United Nations Convention on Contracts for the International Sale of Goods 1980 …. 24.4C NEW ZEALAND Contracts (Privity) Act 1982 …. 39.3C UNITED KINGDOM Chancery Amendment Act 1858 …. 33.1 Companies Act 1948 …. 9.5C s 199 …. 9.5C Consumer Credit Act 1974 …. 16.6C Consumer Credit (Agreements) Regulations 1983 …. 16.6C Sch 1 …. 16.6C Fertilisers and Feeding Stuffs Act 1906 s 1(1) …. 26.5C s 6(1) …. 26.5C Hire-Purchase Act 1964 s 27 …. 16.6C s 29(4) …. 16.6C Increase of Rent and Mortgage Interest (Restrictions) Act 1920 s 2(3) …. 16.5C Lord Cairns’ Act 1858 …. 33.1, 33.2C s 2 …. 33.2C Merchant Shipping (Safety and Load Line Conventions) Act 1932 …. 26.4C s 44 …. 26.4C

s 57 …. 26.4C Misrepresentation Act 1967 …. 37.4C Moneylenders Act 1900 …. 26.5C National Assistance Act 1948 s 42 …. 6.5C Occupiers Liability Act 1957 …. 10.7C Pharmacy and Poisons Act 1933 …. 4.3C s 18 …. 4.3C Road and Rail Traffic Act 1933 …. 27.2E Sale of Goods Act 1893 …. 24.3C s 51 …. 33.2C Sex Discrimination Act 1975 …. 7.5C Statute of Frauds 1677 …. 1.2E, 8.1, 8.3C s 4 …. 38.3C s 9 …. 40.3C Statute of Uses 1535 …. 2.2E Supreme Court of Judicature Act 1873 …. 40.3C s 25(6) …. 40.2C, 40.3C Trade Union and Labour Relations Act 1974 s 13(1) …. 17.2C Unfair Contract Terms Act 1977 …. 13.2C, 30.4C Unfair Terms in Consumer Contracts Regulations 1994 …. 30.4C Unfair Terms in Consumer Contracts Regulations 1999 …. 30.4C reg 3 …. 30.4C reg 5 …. 30.4C UNITED STATES OF AMERICA Restatement (Second) of Contracts 1981 s 90 …. 36.2C Uniform Commercial Code, 14th edition …. 24.4C

s 2-403 …. 16.6C

CONTENTS Preface to Fourth Edition Table of Cases Table of Statutes 1

Introduction to Contract Law

PART I: HISTORY AND THEORY 2 3

History of Contract Law Contract Theory

PART II: FORMATION OF A CONTRACT 4 5 6 7 8 9

The Fact of Agreement The Requirements of Certainty and Completeness Consideration Intention to Create Legal Relations The Requirement of Writing Capacity

PART III: TERMS OF A CONTRACT 10 11 12 13

Express Terms Implied Terms Construction of Contractual Terms Construction of Exclusion Clauses

PART IV: VITIATING FACTORS 14 Misrepresentation 15 Misleading or Deceptive Conduct 16 Mistake 17 Duress 18 Undue Influence 19 Unconscionable Transactions 20 Contracts Review Act 1980 (NSW) 21 Unfair Contracts

PART V: DISCHARGE 22 23 24 25

Discharge by Performance Discharge by Agreement Discharge by Breach Discharge by Frustration

PART VI: ILLEGALITY 26 Statutory Illegality 27 Common Law Illegality 28 Effect of Illegality

PART VII: REMEDIES BASED ON CONTRACT 29 30 31 32 33 34 35

Damages for Breach of Contract Actions for a Fixed Sum and Debt Specific Performance Injunctions Equitable Damages Rectification Rescission

PART VIII: OTHER BASES OF RELIEF 36 Equitable Estoppel 37 Liability in the Law of Torts 38 Restitution

PART IX: THIRD PARTY RIGHTS 39 Privity of Contract 40 Assignment of Contractual Rights and Liabilities Index

DETAILED CONTENTS Preface to Fourth Edition Table of Cases Table of Statutes 1

Introduction to Contract Law Introduction The meaning of the word ‘contract’ The purpose of contract law

PART I: HISTORY AND THEORY 2

3

History of Contract Law Introduction An overview of the history of contract law Instalment debts — legal remedies available The use of assumpsit as a contractual action Origins of the doctrine of consideration Contract Theory Introduction The normative and analytic questions for contract law Promise as the theoretical basis of contract law Transfer of property by consent as the theoretical basis of contract law A feminist critique of contract law

PART II: FORMATION OF A CONTRACT

4

The Fact of Agreement Introduction Offers or invitations to treat — promotional materials Offers or invitations to treat — self-service stores Offers or invitations to treat — auctions Offers or invitations to treat — tenders

5

6

7

Counter-offer or request for further information and acceptance of offer Withdrawal of offers Withdrawal of offer where performance has commenced Acceptance of offers and reliance The postal acceptance rule The extent of the postal acceptance rule Exclusion of the postal acceptance rule Alternatives to offer and acceptance analysis The Requirements of Certainty and Completeness Introduction Agreements must be sufficiently complete Agreements must be sufficiently certain Agreements to negotiate in good faith and the requirement of certainty The enforcement of informal agreements Consideration Introduction Consideration must be bargained for Consideration must move from the promisee ‘Past consideration’ is not consideration The existing contractual duty rule The rule in pinnel’s case Intention to Create Legal Relations Introduction The presumption in family, social, or domestic agreements

Rebuttal of the presumption in family, social, or domestic agreements

8

9

The presumption in commercial agreements The ermogenous approach to intention The Requirement of Writing Introduction The requirement of a written memorandum or note The payment of money and the doctrine of part performance Capacity Introduction The contractual capacity of an infant The capacity of a company at common law

PART III: TERMS OF A CONTRACT 10 Express Terms Introduction Terms and mere representations The effect of signing a contract Misrepresentation and the signature rule Incorporation of terms by reasonable notice Incorporation of terms on the basis of prior dealings The parol evidence rule Collateral contracts Collateral contracts and the requirement of consistency 11 Implied Terms Introduction Terms implied on the facts of the case Terms implied by law Terms implied by custom Implied terms of good faith 12 Construction of Contractual Terms

Introduction General principles of construction of terms The rule against evidence of pre-contractual negotiations 13 Construction of Exclusion Clauses Introduction General principles of construction of exclusion clauses Exclusion clauses and liability in negligence The four corners rule

PART IV: VITIATING FACTORS 14 Misrepresentation Introduction Statement of fact Inducement The relevance of the materiality of the statement of fact 15 Misleading or Deceptive Conduct Introduction The meaning of misleading or deceptive conduct Statutory remedies for misleading or deceptive conduct The ‘conduit’ argument 16 Mistake Introduction Common mistake at common law No common mistake in equity Unilateral mistake as to identity Unilateral mistake as to the terms of a contract The doctrine of non est factum 17 Duress Introduction The meaning of duress

Duress to the person Economic duress 18 Undue Influence Introduction The principles of undue influence Rebutting the presumption of undue influence The wife’s guarantee of her husband’s loan 19 Unconscionable Transactions Introduction Unconscionability and intoxication and mental and physical weakness Unconscionability and business inexperience Unconscionability and problem gambling Unconscionability and business regulation — the Australian Consumer Law 20 Contracts Review Act 1980 (NSW) Introduction What is unjust? 21 Unfair Contracts Introduction Unfair contracts Unfair contractual terms in employment contracts

PART V: DISCHARGE 22 Discharge by Performance Introduction The requirement for exact performance Substantial performance and discharge of contractual obligations 23 Discharge by Agreement Introduction Discharge of a contract pursuant to an express or implied term of the

original contract Discharge of a contract where the contract expressly provides that a nominated event must occur, but that event does not occur Discharge of a contract by release Discharge of a contract by abandonment 24 Discharge by Breach Introduction Conditions and warranties Intermediate terms Time stipulations and notices to complete Termination pursuant to a contractual right to terminate Anticipatory breach Relief against forfeiture 25 Discharge by Frustration Introduction Court orders leading to frustration Destruction of the subject matter of the contract leading to frustration Failure of a condition of the contract leading to frustration The effect of frustration at common law

PART VI: ILLEGALITY 26 Statutory Illegality Introduction Express statutory illegality Implied statutory illegality 27 Common Law Illegality Introduction The illegality defence Contracts contrary to public policy Contracts prejudicial to the administration of justice

Contracts in restraint of trade generally Restraints of trade in employment contracts Restraints of trade in exclusive dealing contracts Enforcement of a post-employment restraint of trade following repudiation by the employer 28 Effect of Illegality Introduction The enforceability of contracts that are unlawful or have an unlawful purpose Illegality and claims based in tort law Illegality and the doctrine of severance

PART VII: REMEDIES BASED ON CONTRACT 29 Damages for Breach of Contract Introduction Exemplary damages and breach of contract The date for assessment of damages Damages for loss of a chance The recovery of damages for non-economic loss Damages for reliance loss Damages for indemnity loss The rules of remoteness The obligation to mitigate 30 Actions for a Fixed Sum and Debt Introduction The principles relating to penalties Actions for the recovery of a debt and instalment contract payments Actions in debt and the duty to mitigate 31 Specific Performance Introduction

The inadequacy of damages at common law Contracts for the sale of personalty Contracts for personal services Constant court supervision of an order for specific performance Laches The requirement that the plaintiff be ready, willing, and able 32 Injunctions Introduction Restraints of trade in personal services contracts 33 Equitable Damages Introduction Equitable damages in lieu of specific performance Equitable damages in addition to specific performance 34 Rectification Introduction Rectification for common mistake Rectification for illegality Rectification for unilateral mistake 35 Rescission Introduction The meaning of restitutio in integrum Partial rescission Loss of the right to rescind by affirmation

PART VIII: OTHER BASES OF RELIEF 36 Equitable Estoppel Introduction The nature of equitable estoppel Detriment and equitable estoppel Relief based upon equitable estoppel

37 Liability in the Law of Torts Introduction Fraudulent misrepresentation Carelessly made pre-contractual statements Concurrent liability and the measure of damages Torts for economic loss caused by intentional acts Justification and inducement to breach a contract 38 Restitution Introduction Principles regulating the recovery of the value of work done or other non-monetary benefits supplied Entire contracts and restitution Restitution and recovery of money paid by mistake Recovery of money paid where consideration has totally failed

PART IX: THIRD PARTY RIGHTS 39 Privity of Contract Introduction The privity of contract principle The trident case ‘Himalaya clauses’ and privity of contract 40 Assignment of Contractual Rights and Liabilities Introduction Contractual rights as choses in action Assignments in equity Assignment of the right to litigate for breach of contract Index

[page 1]

1 INTRODUCTION TO CONTRACT LAW

INTRODUCTION 1.1 This chapter explores two matters in relation to contract law, as an introduction to the examination of the substantive content of contract law in the remaining chapters of this book. The first of the matters addressed is the definition of ‘contract’. The renowned 19th-century scholar Frederick Pollock began his treatise on the principles of contract law by saying: ‘The law of Contract may be described as an endeavor of the State … to establish a positive sanction for the expectation of good faith which has grown up in the mutual dealings of men of average right-mindedness’. Immediately following this sentence Pollock gives what he claims to be ‘the most popular’ and ‘most exact’ definition of a contract.1 Pollock’s short definition is one based on the concept of enforceable promises. However, there are different short definitions based on the concept of enforceable agreements. The strengths and weaknesses of these definitions of contract are discussed in P S Atiyah, ‘Definition of Contract’ (see 1.2E). The second matter concerns the importance of contract law. Contract law is a reality in the daily lives of everyone. It thus plays an important role in the shaping and functioning of society. The role that contract law plays in facilitating trade and commerce and, as Pollock would say, establishing ‘a positive sanction for the expectation of good faith … in the mutual dealings of men [and women]’, is discussed in Roger Brownsword, ‘The Function of Contract Law’ (see 1.3E).

THE MEANING OF THE WORD ‘CONTRACT’ 1.2E

Atiyah, ‘Definition of Contract’

Source: P S Atiyah, An Introduction to the Law of Contract, 5th ed, Oxford University Press, Oxford, 1995, pp 37–41. Extract: The extract from Atiyah’s book discusses definitions of contract based upon promise and agreement. He notes that, although they both give a reasonable sense of what a contract is, each has its own limitations.

[page 2]

Definition of contract Definitions of contract are usually cast in terms either of agreements or of promises. So English lawyers generally define a contract as ‘an agreement which is legally enforceable or legally recognized as creating a duty’, and there are many similar definitions cast in terms of promises. One widely used definition is that in the American Restatement of Contracts: A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognises as a duty. Some other definitions are in similar terms, but sacrifice some accuracy as the price for succinctness. Pollock, for instance, defined a contract as ‘a promise or a set of promises which the law will enforce’. But there are problems with definitions of this kind. First, they assume that the law ‘enforces’ contracts. There is nothing seriously objectionable about this, and in fact lawyers constantly talk about contracts being ‘enforced’ but, strictly speaking, this is incorrect, and in some ways it is also misleading. Courts hardly ever ‘enforce’ contracts themselves, and they rarely even order the parties to perform their promises. Generally speaking, the law

does not actually compel the performance of a contract; it merely gives a remedy, normally damages, for the breach. In practice this means that what a breaching party is ordered to do by a court is rarely what he actually promised or agreed to do, and that may be a point of some importance for understanding the theoretical foundations of the law. Until very recently it was always necessary, in attempting to define a contract, to take account of some anomalous cases which were at one time of considerable importance. Under the Statute of Frauds of 1677 and [its] later replacements, … it was necessary for certain contracts to be evidenced in writing if they were to be fully ‘enforceable’, even in the sense which that term usually bears in contract law. The final clause of the definition from the Restatement was inserted to take account of this problem. Where the statutory requirement of writing was not complied with the contract could not be enforced by direct legal action, but it was none the less recognized to exist and to create a duty of performance which could be indirectly relevant in other ways. In England, recent reforms have almost completely eliminated this rare type of case, and it can now be said that, if a contract exists in the legal sense, it will be legally enforceable in the same way as all contracts are legally enforceable. At the same time, it needs to be recognized that agreements and promises can be made and given some legal recognition in different contexts without always being thought of as legal contracts. An agreement by two persons to engage in sexual conduct, for instance, would not be treated by lawyers as a contract, but it undoubtedly has important legal implications — it means, for instance, that the male cannot be guilty of rape. So also, an agreement between the solicitors of two parties engaged in litigation (for example, that no objection would be made by one party to an application for an adjournment by the other) would not be regarded as a contract, but would certainly be recognized as having legal significance.2 [page 3] Another, and perhaps more fundamental, problem is that definitions in terms of agreements or promises assume that agreements and promises are ‘things’ which exist outside the law and can easily be recognized as such.

But agreements and promises are not physical objects which can be perceived by the senses. They are themselves abstract concepts, just as much as the concept of contract itself. Of course ‘agreement’ and ‘promise’ are ordinary English words, and do have well-understood meanings in ordinary speech, so it may be possible to recognize them when one sees them, as it were, without any legal training. No doubt this is true of some agreements and promises, but it is not true of all. There are many difficult questions involved in actually identifying an agreement or a promise. … [F]or instance, … [there is] the problem of the person who signs a document without reading it. Does his signature show that he ‘agrees’ to the contents of the document, whatever they may be; that he ‘promises’ to do whatever the document says, even though he has not read it? In many cases of this nature it is not possible to say whether there is an agreement or a promise until we have first of all analysed the issue in legal terms. In other words it is the law itself which provides the only precise definitions we have of the concepts of agreement and promise, so definitions of contract which use these concepts are either incomplete or circular. Another possible weakness of the definition of the American Restatement is that it ignores the bargain element in contracts. No indication is given in the definition that the typical contract is a two-sided affair, something being promised or done on one side in return for something being promised or done on the other side. Thus, to say, as this definition does, that a contract can simply be ‘a promise’ is to overlook the fact that there is generally some act or promise given in return for the other promise before that promise becomes a contract. Even to say that a contract may consist of ‘a set of promises’ gives no indication that some of these promises are usually given in return for some others. On the other hand, it would be wrong to think that all contracts are genuine bargains in which something is offered on one side for something else of equivalent value on the other. In fact, as we shall see, there are cases in which promises are treated as contractual though there is no real bargain. A promise which is simply relied upon by the promisee even though he gives nothing in return is not a bargain, though it often creates legal obligations. For instance, … there are well established English cases holding that an advertisement offering a reward for specified conduct can lead to a contract if the conduct is performed. Yet such cases do not seem to involve anything

that could be called a bargain or an ‘agreement’ in ordinary speech. The person who performs the conduct does not agree to do anything, and the person offering the reward promises, rather than agrees, to pay the reward. Then there are also many cases involving other doctrines which are very close to contract (such as ‘estoppel’) in which a promise is enforceable because it has been relied upon by the promisee, yet there is nothing which can really be called an agreement. American lawyers, relying on the definition and approach of the Restatement would often treat such cases as contractual, which is probably why American lawyers tend to define contracts in terms of promises rather than of agreements. A more fundamental weakness of all definitions in terms of promises or agreements is that they presuppose that people only enter into contractual relations after they have made some [page 4] agreement or promise. The assumption of the law is thus that contract is always a planned affair — agreement first, performance later. But this is not always the case. People sometimes simply enter into transactions or relations which are not really based on prior agreements or promises. One obvious example is that of the simultaneous exchange or sale. A person who buys goods in a supermarket and pays cash for them is exchanging his money for the goods that he buys. There is no doubt at all that this is a legal contract, but it is artificial to regard it as a contract created by agreement or promises. To insist that there must be a prior agreement or a set of promises in such a case is to imply that there is a moment of time — before the handing over of the goods and the money — in which the parties are legally bound to perform their agreement or promises. But it seems very doubtful whether that is the case. In practice, it is surely inconceivable that either party would object if the other changed his mind at the last minute, in a case of this nature. For all practical purposes this is a case where the parties make an exchange or a sale without any prior agreement to do so. And there are many other similar cases recognized by the law as, for instance, where a person simply boards a bus, paying as he enters, or drives into a car park, putting his money into a slot machine, or taking a

ticket which obliges him to pay on exit. In many cases of this nature the transaction does not in practice become legally binding until one party has actually done something, so it is artificial to regard the obligations as arising purely from agreement or promises. Still, it must be recognized that the strength of the classical tradition in contract law is great: a traditionalminded lawyer might very well argue that ‘in contemplation of law’ there is an implied agreement before the actual exchange of goods for money. There is a still broader source of difficulty about all attempts to define a contract. A definition of a contract presupposes that the law recognizes a single concept of contract. In fact it is doubtful if this is really the case. Certainly there is one very central and powerful concept in the middle of contract law — and that is the concept, roughly speaking, of classical contract law. But contractual obligations arise in such a very wide variety of circumstances, and are based on such a wide variety of grounds, that there is little relationship between cases on the outer extremities of contract law. It is true that central and straightforward cases, like a simple sale of goods, are usually treated as paradigms of contract, but there are many other types of contract which can claim to be equally paradigmatic, and yet which differ greatly from a simple exchange like a sale of goods. A contract of employment, for instance, is a relationship which may subsist over a long period of time, and cannot be easily seen as a mere agreement or set of promises. Again, contract law is often used for different purposes such as regulating institutions. Bodies like the Jockey Club, for example, which are not technically speaking companies or corporate bodies, are treated in law as a group of members bound together by contract. But institutions like this have a real existence and can hardly be said merely to consist of agreements or promises. Then also, contract law often serves purposes other than merely giving effect to agreements and promises. Promises and agreements undoubtedly lie close to the centre of the concept of contract; but there are at least two other ideas which also lie very close to that centre. One is [page 5] the idea that a person who induces another to rely upon him and change his

position, ought not to let that person down; and the other is the idea that a person who receives a benefit from another ought generally to pay for that benefit, whether he has promised or not. Contractual obligations are often imposed for one or other of these reasons on persons who have not really promised or agreed to bear them. In cases of this nature it would often be absurd to try to identify ‘a contract’ as though there were a thing corresponding, say, to a formal written contract in cases closer to the typical or paradigm contract of classical theory. There simply is no such ‘thing’ to be found. What is to be found is some behaviour by the parties as a result of which the law treats them as coming under certain obligations which may be called contractual. In order to reconcile this result with traditional definitions of contract, two devices are often employed. One is to rely on the concept of an ‘implied agreement’ or an ‘implied promise’; the other is to argue that the liability being imposed is not ‘truly’ contractual but is in fact a legal liability of a different kind — for instance a liability in tort, or a liability arising from ‘estoppel’. In the last analysis many of these issues are verbal ones. Since the law does not contain an authoritative and conclusive definition of contract, there is no way of saying what is ‘truly’ a contractual liability. And the fact that different legal systems may treat liabilities as contractual which English lawyers would treat as non-contractual suggests that the search for a liability which is ‘truly’ contractual is pretty artificial. But the fact that there is often no thing which can sensibly be identified as the contract which the parties have made means that we need to be careful about some of the questions posed by classical law, and about some of the ways in which lawyers talk. For instance, classical law often asks such questions as, how is a contract made, or when (or where) was a contract made? This kind of question is clearly inappropriate in those cases where the law creates a liability out of the behaviour of the parties, but this is not always recognized by lawyers. And more generally, the fact that lawyers (and law books) talk of the law of contracts tends to reify contracts, so strictly speaking it would perhaps be more accurate to talk of the law of contractual obligations than of the law of contracts.

Comments

1.2.1

See Radan, Gooley, and Vickovich at 1.1–1.10.

1.2.2

Two leading Australian texts on contract law offer differing definitions of contract. Carter defines contract as ‘a legally binding promise or agreement’: J W Carter, Contract Law in Australia, 6th ed, LexisNexis Butterworths, Sydney, 2013, p 3. Seddon, Bigwood, and Ellinghaus refer to contracts as being ‘about legally enforceable consensual obligations’: N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot, Law of Contract, 10th Australian ed, LexisNexis Butterworths, Sydney, 2013, p 61.

[page 6]

THE PURPOSE OF CONTRACT LAW 1.3E

Brownsword, ‘The Function of Contract Law’

Source: Roger Brownsword, Contract Law, Themes for the Twenty-First Century, 2nd ed, Oxford University Press, Oxford, 2006, pp 37–41. Extract: The extract examines the various functions of contract law. These include the facilitation of trade and commerce, the protection of the public, and providing a means for the resolution of disputes.

The function of contract law [There exists] the sceptical view that the law of contract in general, and the English law of contract in particular, performs no useful function. However, there is a difference between alleging that the law of contract lacks a guiding purpose and complaining that it fails to deliver on its intended purpose (fails to function as intended). An adequate response to the former charge will not necessarily also adequately respond to the latter complaint. There are, it seems, a number of angles from which we might inquire as to

the function of contract law. We might ask, for example, what function contract law is intended to have, or what function it actually does have, or what function it ideally ought to have. In principle, different accounts of the function of contract law might follow from the differing ways in which the question is posed. For instance, we might say that the intended function of the law of contract is to establish the ground rules for trading between free and equal individuals; that, in practice, where the parties are free and equal, they make little use of contract law and, where the parties are not free and equal, contract law functions as a licence for one party to exploit the vulnerability of the other; and that, ideally, contract law ought to function as a platform for developing relationships built on trust and solidarity rather than legitimating short-term advantage-taking — in other words, contract law ought to reinforce and reflect a cooperative rather than an individualist ethic. If our angle of inquiry is the intended function of contract law, we must allow for the possibility of some deviation in practice (ie, in relation to the actual function of contract law) and we must not assume that the specified intended function will correspond with everyone’s idea of the ideal function. However, we can avoid begging too many questions by saying that the core purpose of contract law is to set out a regulatory framework within which exchange can take place. Furthermore, if this regulatory framework is to be at all adequate, we can take it that it must prescribe what counts as a contract, that it must determine when contractual obligation arises and how contracts are to be interpreted, and (crucially) that it must provide for a remedial regime of some kind. As Wolfgang Friedmann put it, it is ‘the sanctions of contract [that] enable the hirer of services, the manufacturer of goods, the speculator in land or the purchaser of shares, to engage in calculated economic risks.’3 Yet, insurance against calculated economic risks (or security against non-performance or defective performance) [page 7] is only one of four elements that Friedmann associates with the social function of contract in the formative period of modern industrial and

capitalist society, the other three elements being freedom of movement, freedom of will, and equality between parties.4 According to Friedmann, contract functions as a legal instrument for the free circulation of goods and labour, thereby signalling the movement away from societies characterized by status and immobility. Again, we can accept this as a statement of the intended function of contract without begging too many questions. However, when we move on to the elements of freedom of will and equality between the parties, Friedmann warns that we are dealing with expressions of particular political and social ideologies. In the case of freedom of will, we are taking on board the ideology of freedom of contract; and, as Friedmann explains, the ideology of equality is its partner in crime: To some extent, the concepts of freedom and equality in contract are interchangeable. Lack of freedom to make or unmake a contract, or to bargain on its terms, also implies lack of equality. As long as we restrict both concepts to the limited meaning which the orthodox theory of contract gives them, one usually implies the other. In so far as a person is free from physical restraint or other direct compulsion to make and unmake a contract, he is also assumed to be in a position of equality. Because the law will impartially award damages or an injunction according to the same principles of corrective justice to the employer and to the employee, it is not generally concerned with the inequality resulting from the fact that one may be a corporation controlling the entire oil or chemical industry of the country, and the other a worker on weekly wage and notice.5 As Friedmann himself observes, the practice of contracting and, concomitantly, the law of contract itself has been transformed by such factors as the standardization of contracts, collective bargaining, programmes of welfare and consumer protection, and the realignment of the relationship between the public and private spheres. … [W]e can highlight three broad objectives that might serve to guide our thinking about the intended, actual, and ideal functions of the modern law of contract.6 First, it is widely accepted that contract law aims to facilitate exchange. Indeed, as Lord Irvine has put it, the commercial law of contract serves as

an engine for trade.7 Exchange is not normally compulsory; but, for those who wish to exchange, contract law attempts to put in place a secured framework that facilitates dealing with a degree of confidence and trust. Contract law lays down the transactional ground rules; contractors know where they stand; whether parties deal with friends or strangers, at home or away, they trade in the shadow of the sanctioning apparatus of the law. To this extent, contract law channels parties towards performance. [page 8] Secondly, it is recognized that contract law has a protective function. At one level, this function is relatively uncontroversial, the idea being that contract law must be compatible with the public interest in general. Thus, parties must not be encouraged or permitted to draw on the sanctioning apparatus of contract law where their agreement is illegal or, in some other sense, is antithetical to the public interest. More controversially, however, it is arguable that the intent underlying much of the modern law is to protect parties who are relatively vulnerable. Certainly, it is widely agreed that one of the distinctive functions of the modern law of contract is to put in place a protective regime for routine consumer dealing. Thirdly, where contracts give rise to disputes, it is accepted that one of the objectives of contract law is to put in place machinery for the resolution of such disputes.8 Indeed, some commentators would argue that the distinctive feature of the modern law is that the courts have increasingly taken their function to be that of private dispute-settlement rather than that of general channelling or rule-setting — and one might see as one of the corollaries of this thesis a tendency for the body of contract doctrine to reflect this change by becoming more flexible, open-textured, and discretionary.9 Whether or not contract law actually succeeds in practice in delivering on its facilitative, protective, and dispute-resolving objectives, is a matter for … empirical inquiry … (including inquiry into the accessibility of the institutions through which the law is administered).10 Whether or not contract law ought to adopt such functions, and in what sense and how it ought to adopt such functions, are matters that need further analysis. On the face of it, the function of facilitating exchange is unproblematic.

However, once we begin to debate the more detailed features of the regulatory regime, we run into the question of what kind of exchange relationship the law of contract should aim to facilitate. Should it be selfinterested exchange, based on the ethic of individualism; or should it be exchange that is guided by cooperative thinking? Moreover, there is another major question concealed by the bland statement that contract law aims to facilitate exchange. In principle, contract law could be seen as a freestanding framework for exchange or as one that is deeply connected with existing trading practices. On the former view, contract law is, so to speak, imposed ab extra; whereas, on the latter view, contract law largely tracks existing practice and simply formalises transactional norms that are already recognised by traders. To put the point more sharply, did Lord Goff speak for the ideal function of contract law generally when he said of the work of the Commercial Court: ‘We are there to help businessmen, not to hinder them: we are there [page 9] to give effect to their transactions, not to frustrate them: we are there to oil the wheels of commerce, not to put a spanner in the works, or even grit in the oil’?11 … The second function of the modern law of contract is, as we have noted already, a matter of some controversy. Whilst, at one extreme, free marketeers might argue that it is quite wrong for the law to assume any kind of protective function, at the opposite extreme, it will be argued that the law should offer comprehensive protection to those who are damaged by the deals that they make, and various shades of opinion will be expressed in the middle. There will also be debates about whether, if protection is to be offered, the law of contract is the best instrument for achieving this purpose (as against, say, the use of criminal law, administrative regulation, or redistributive taxation). And, there will be debates about whether protectivism can be distinguished from paternalism and consumerism; and, if so, whether a defensible protectivism can be prosecuted in practice without also adopting elements of paternalism and consumerism. … Finally, if the commentators are right in detecting more flexibility and

discretion in the law, then there is likely to be less calculability in the law, and a familiar puzzle arises. Namely, should contract law prioritize its commitment to facilitation of exchange (to certainty, predictability, and bright line rules) or should it prioritize its commitment to fairness in dispute resolution? Frequently, this is the issue that divides the courts; and the accommodation of these competing functions is often reflected in the particulars of doctrine — for example, by structuring and confining what might otherwise be open-ended discretions. Indeed, whether one thinks that the function of contract law is primarily about constituting a market in accordance with sharply defined rules, or whether one thinks that it is primarily about achieving fair and reasonable settlements of disputes arising from transactions, this is one of the major ideological questions for contract lawyers.

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Comment 1.3.1 See Radan, Gooley, and Vickovich at 1.11–1.14.

1.

F Pollock, Principles of Contract: A Treatise On the General Principles Concerning the Validity of Agreements in the Law of England, 5th ed, Stevens & Sons Ltd, London, 1889, p 1.

2. 3.

For an example of a case giving legal effect to a promise in a non-contractual context, see R v Croydon Justices, ex parte Dean [1993] 3 All ER 129. W Friedmann, Law in a Changing Society, 2nd ed, Columbia University Press, New York, 1972.

4. 5.

W Friedmann, Law in a Changing Society, note 3 above, pp 119–29. W Friedmann, Law in a Changing Society, note 3 above, p 124.

6.

See generally K N Llewellyn, ‘The Normative, the Legal, and the Law-Jobs: The Problem of Juristic Method’ (1940) 49 Yale Law Journal 1355. Lord Irvine of Lairg, ‘The Law: An Engine for Trade’ (2001) 64 Modern Law Review 333.

7. 8.

9.

Or, to respect the machinery put in place by the contracting parties. In line with this objective, the modern law of arbitration has moved ever closer to accepting the principle that, in general, where the parties have agreed to provide their own machinery for settling disputes, court intervention should be minimised. … See P S Atiyah, From Principles to Pragmatism, Oxford University Press, Oxford, 1978; G H Treitel,

Doctrine and Discretion in the Law of Contract, Clarendon Press, Oxford, 1981; and L M Friedman, Contract Law in America: A Social and Economic Case Study, University of Wisconsin Press, Madison WI, 1965. 10.

11.

See H Collins, ‘The Sanctimony of Contract’ in Richard Rawlings (ed), Law, Society and Economy, Centenary Essays for the London School of Economics and Political Science, 1895–1995, Oxford University Press, Oxford, 1997, pp 63–89. Lord Goff, ‘Commercial Contracts and the Commercial Court’ (1984) Lloyd’s Maritime and Commercial Law Quarterly 382 at 391.

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Part I: History and Theory

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2 HISTORY OF CONTRACT LAW

INTRODUCTION 2.1 This chapter provides an overview of the history of contractual obligations. As part of this overview, reference is made to the most common actions that were available in the medieval period (namely, debt and covenant) as well as to the development of assumpsit and the doctrine of consideration. In order to illustrate how contract law has evolved, reference has been made to the development of debt, covenant, assumpsit, indebitatus assumpsit, and to consideration. In this respect, extracts are provided from Anson, ‘History of Contractual Obligations in English Law’ (see 2.2E), where the history of contractual obligations in English Law from medieval times through to the 19th century is summarised. In addition, case examples are used to show how the early actions were applied in practice. In Taylor v Foster (1599) 78 ER 1034 (see 2.3C), a decision at the end of the 16th century, an issue arose as to whether damages were recoverable in an instalment contract when the date for the second and final payments had not crystallised. Later courts began to allow the use of assumpsit as a contractual action, rather than limit recovery to those suing in debt. The most notable early illustration of this development occurred in Slade’s Case (1602) 76 ER 1072 (see 2.4C). An important development arose in the mid-16th century with the development of an early form of what is regarded as the doctrine of

consideration. This development is explored in the extract from J H Baker, ‘Origins of the “Doctrine” of Consideration, 1535–1585’ (see 2.5E), where emphasis is given to the origin of consideration, to attempts to delimit it, and to an examination of the question of whether the doctrine is in fact old law or new.

AN OVERVIEW OF THE HISTORY OF CONTRACT LAW 2.2E

Anson, ‘History of Contractual Obligations in English Law’

Source: A G Guest, Anson’s Law of Contract, 25th ed, Clarendon Press, Oxford, 1979, pp 8–18. Extract: The extract from Guest’s edition of Anson’s Law of Contract contains a succinct overview of the history of contractual obligations in English law. In the extract Guest emphasises that the purpose of his overview is not so much to recount historical events, [page 14] but rather to assist in understanding how the current law came to be developed and in appreciating how changes occurred. The outline begins with the more common medieval actions of debt and covenant and then explores the remedy of assumpsit and its subsequent development into indebitatus assumpsit. It also traces the origins of the doctrine of consideration, a doctrine more fully explored in Chapter 6.

The history of contractual obligations in English laws Our modern law of contract contains much which can properly be understood only in the light of its history. Without some acquaintance with this history, the Law Reports, especially those earlier in date than the procedural simplifications of the nineteenth century, will hardly be

intelligible to the student. Hence, even in a book which aims only at stating the principles of the modern law, it is desirable to give some account of how that law came to take the form which has just been indicated in outline. We shall see that it has not been by any process of analysis and elucidation of the essential nature of a contract that the law has been moulded. Indeed, the very idea of enforcing promises or agreements as such, which seems most natural to us, is not an early one in the history of any legal system. We have therefore to go back to a time before any such purpose was consciously present to the minds of English lawyers, and we shall find the key to the story by examining the conditions which the Courts have attached at different stages to the actions which they were willing to admit for the enforcement of the kind of rights which we now regard as contractual. The story can here be given only in the barest outline, and it should be understood that there are some points in it which are still obscure or controversial.

The medieval actions In the period which immediately followed the Norman Conquest, the royal judges were more concerned with the dual task of keeping the peace and working out the detailed system of land tenure to take much account of private agreements. Nevertheless, by the end of the thirteenth century two forms of action for enforcing rights which included some of those which we should now call contractual had taken fairly definite shape. These were the action of Debt, and the action of Covenant. (a) Debt It is difficult to describe the action of Debt without reading back into medieval times legal ideas which would not have occurred to lawyers of those days. But if we are to fit it into our modern categories, we shall have to say that, at first, it had more the character of a recuperatory than of a contractual remedy. In fact, originally Debt was but a part of the composite writ of Debt-Detinue, in which the plaintiff alleged that the defendant was ‘unjustly detaining’ something which was of value to him and to which he was entitled. By the beginning of the fourteenth century it came to be recognized that, in general, Detinue was the proper action for the recovery of specific chattels, and Debt for the recovery of money.

[page 15] So in Debt the gist of the action was that the defendant was detaining a sum of money which was really the plaintiff’s money. The action was used to enforce a variety of claims for the repayment of a loan, for the price of goods sold, and for the rent reserved in a lease. Or there might have been no ‘contract’ and the sum might have become owing in some other way — for example, as customary dues, or by the judgment of a Court. These claims were grouped by later medieval lawyers into three classes: Debt on the Record (for the payment of a sum of money ordered to be paid by a Court and entered upon its record), Debt on an Obligation (where the plaintiff produced a sealed instrument), and Debt on a Contract. Thus in 1410 it was said, ‘Each writ of Debt is general and in one form, but the count is special and makes mention of the contract, the obligation or the record, as the case requires.’ The description ‘Debt on a Contract’ is, however, rather misleading from a modern standpoint, for a contract would result in a ‘debt’ being owed to the plaintiff only after he had performed his own part under it. For instance, if the plaintiff had agreed to sell goods, there would be no ‘debt’ owing to him until he had delivered them.1 Or to put the same point from the side of the defendant, he would only be liable to an action of Debt if he had received some benefit or performance, a Quid pro Quo, in return for his promise to pay the money. Mutual promises were thus insufficient to sustain an action of Debt unless the plaintiff had himself performed his side of the bargain. It is possible that the Courts might, in time, have modified the conditions of this action and developed out of it a remedy for the enforcement of contracts which were completely executory, but, as we shall see, they invented another, and more convenient, remedy to meet that case. One reason why Debt did not develop in this way was probably because there were certain inconvenient incidents attaching to it which made it unpopular. One of these was that in Debt, the defendant might normally ‘wage his law’,2 and the action would then be determined, not upon its merits, but by an archaic process known as ‘compurgation’, in which the defendant came into Court and declared upon oath that he did not owe the debt, and twelve respectable neighbours, his ‘compurgators’ or ‘oath helpers’ declared, also upon oath, that they believed that his oath was good.

A second was that Debt could only be brought to recover a certain sum of money; and the plaintiff had to recover the precise sum claimed, or fail completely. Finally, the recuperatory nature of the action, and the requirement of a Quid pro Quo, stifled its development as a remedy based on agreement, so that it could be very little adapted to meet changing commercial conditions. (b) Covenant The writ of Covenant had emerged by the beginning of the thirteenth century, and by the reign of Henry III3 it was a frequently used form of action. It covered consensual agreements [page 16] of various kinds, and in particular agreements to do something, such as to build a house, other than to pay a definite sum of money. But by the middle of the fourteenth century it was clearly established that Covenant required the production of a sealed instrument. The agreement was enforced not because the parties had exchanged mutual promises, but because it had been made in a particular form to which the law attached a peculiar force. This requirement of a seal confined the action within formal limits. Moreover, if the plaintiff’s claim was for a fixed and certain sum of money, the proper action was that of Debt. Covenant could therefore scarcely be expected to produce a general contractual remedy. There was yet a third action of a ‘contractual’ nature. This was the action of Account which could be used against those whose duty it was to account for moneys received by them on behalf of another. Its importance, however, lies mainly in the field of quasi-contract. …

Assumpsit The remedy which was eventually found for the enforcement of informal promises is a curious instance of the shifts and turns by which practical convenience evades technical rules. Such a remedy was developed out of two actions, the action of Trespass and the action of Deceit, and at first

sight it requires more than a little ingenuity to see any logical connection between these actions and contractual agreements. But briefly the process was as follows. Trespass lay for a direct physical injury to the person or to property, but by some process, the details of which are contentiously obscure, there had developed out of it a modified form of action which would lie for injuries which were not direct or physical, and this came to be known as Trespass on the Case, or simply as Case.4 Case is the parent of many of our modern torts as, for instance, nuisance and negligence, but with that side of its prolific development we are not here concerned. Deceit, too, was at first a very narrow and technical form of action, but out of it seems to have developed an action of Deceit on the Case which had a wider compass. The boundaries between these two types of the action on the Case are difficult to trace, but both appear to have been instrumental in the future development of Case in relation to the enforcement of mutual promises. Now if we are to apply our modern categories to Case, it is evident that we should classify it as an action in tort, and not in contract. It lay originally for damage caused by one man to another by the commission of an unlawful act, a misfeasance, but one not amounting to an actual trespass. But one common occasion of one man injuring another by a misfeasance is where he has promised to do something for that other, and has fulfilled his promise so negligently or otherwise improperly that the other has been damnified by his conduct. So, for example, where a ferryman undertook to carry a mare in his boat across a river, but so overloaded the boat that it sank and the mare was drowned, and where a man promised to cure a horse and yet did it so negligently that the horse died, an action was given to the owner in respect of the damage suffered. [page 17] At this stage in the story we begin to see a special form of Case breaking off from the parent stock, applicable to the case where damage has been caused by the misperformance of that which a man has ‘assumed’ or promised to do. This is the action of Assumpsit, which was destined in course of time to supplant the older actions of Debt and Covenant, and to mould the

conditions on which mere informal promises were to become actionable in our law. But at this stage the action is still delictual: the promise which the defendant has given has provided the occasion for the wrongful act by which he has injured the plaintiff, but it is for the harmful consequences of that act, and not for the broken promise as such, that the action is allowed. There still had to be a positive act; and a mere nonfeasance, or failure to carry out a promise, would not suffice. In such a case the judges held that the action, if any, would have to be in Covenant, and the plaintiff would have to produce a sealed instrument. It was, perhaps, this limitation which led litigants to explore the possibility of Deceit as an alternative remedy. In Doige’s Case in 1442, an action of Deceit was brought against Doige in the King’s Bench. The complaint was that the plaintiff had bought from Doige a plot of land for £100, that he had paid this sum to Doige, and that Doige had promised to enfeoff him within fourteen days. In fact, Doige had enfeoffed another, and so deceived him. It was contended for Doige that the proper cause of action was in Covenant, but the Court of Exchequer Chamber gave a verdict in favour of the plaintiff. The case was clearly one of nonfeasance, and it is thus probable that both Deceit and Trespass contributed to the evolution of that branch of Case known as Assumpsit. Nevertheless, as late as 1503, a law reporter could note: where a carpenter makes a bargain to make me a house and does nothing, no action on the case lies, for it sounds in covenant. But if he makes the house improperly, the action on the case well lies. By this time, however, the obvious inconvenience of there being no remedy for the breach of an executory contract, unless it had been made under seal, was beginning to influence the Courts, and there was besides a special reason why the common law Courts could not rest content with the law as it then was. The Chancellor was showing signs of being willing to enlarge a jurisdiction which he already exercised over contracts, and the Courts began to fear that he might annex a subject which they regarded as their own. So we find that, at the beginning of the sixteenth century, they began to allow Assumpsit to be brought for the nonfeasance of a mere promise. At first, it seems that Assumpsit was only allowed in these cases of nonfeasance where the plaintiff had paid money under the agreement, but before long it

was enough if he had suffered some detriment under it other than payment of money. The way was now clear for the formulation of a general contractual remedy based on agreement and with no requirement of form.

Indebitatus assumpsit The next development came some thirty years later in the sixteenth century, when the Court of King’s Bench began to allow Assumpsit to be brought in cases where, in fact, Debt was the proper remedy. It was a cardinal principle of English law at this time not to allow two alternative remedies on the same set of facts. But King’s Bench showed itself prepared to [page 18] disregard this ‘rule against double remedies’ and to allow a plaintiff to choose between Debt and Assumpsit. This step was bitterly resented by the Court of Common Pleas which had a virtual monopoly of the older actions. Owing to the superior efficacy of the action of Assumpsit, business (and, with it, revenue) began to flow out of Common Pleas into King’s Bench, to the satisfaction of the latter and the chagrin of the former. For a time, there was an unfortunate conflict between the two Courts — a conflict which eventually culminated in a victory for King’s Bench. The case which brought about this victory was Slade’s Case in 1602,5 which, so Coke tells us, was twice argued before all the justices of England and the Barons of Exchequer assembled in the full Court of Exchequer Chamber: Slade complained that, at the special instance and request of the defendant, Morley, he had bargained and sold to Morley a crop of wheat and corn; that the defendant had assumed and promised to pay him the sum of £16; that the defendant had not paid the said sum, whereby he suffered damage. The jury found, in a special verdict, that there was no other promise or assumption except the actual bargain itself. It was argued on behalf of the defendant that the proper form of action was Debt and not the action on the case for Assumpsit, and that to hold

otherwise would be to deprive the defendant of the opportunity of waging his law. The Court, however, held that, although the action of Debt lay upon the contract, yet the plaintiff might have an action on the case or an action of Debt at his option. And it was further resolved that ‘every contract executory imports in itself an Assumpsit, for when one agrees to pay money or to deliver any thing, thereby he assumes or promises to pay or deliver it’. It may be said that this is the most important case in the whole history of contractual obligations in English law, for the action of Assumpsit was now able to emerge as a general contractual action, freed from the inhibiting forms and limitations of the medieval writs. This generalization is the distinctive mark of the English law of contract. In Roman law, for example, the jurists thought in terms of particular obligations — of sale, loan, hire, and deposit, and made but trifling generalizations from these. In the common law, however, particular contracts were, for the most part, discarded, and the common lawyers thought more in terms of a single type of obligation with a variable content than of the pigeon-hole actions of a formulary system. This process was aided and accentuated by the fact that, not long after Slade’s Case, the Courts began to allow Assumpsit to be brought when services had been rendered or goods supplied in circumstances which made it clear that they were to be paid for, even though the amount of the payment had not been expressly fixed. The plaintiff was allowed an action for quantum meruit, for the amount which his services deserved, or for quantum valebant, for the amount which the goods were worth, or, as we should say today, he was allowed to claim a reasonable remuneration or a reasonable price. Later still the Courts went even further and were ready to imply a contract not only from the conduct of the parties, but also where there was no agreement at all. … [page 19] In 1852 it became no longer necessary to mention in the writ by which an action was begun the particular form in which it was being brought, and in 1875 the Judicature Act abolished the forms of action altogether. Thus English law was left with a generalized law of contract — a situation which

contrasts favourably with the lack of generality in the companion subject of torts.

Consideration In English law, a mere promise (unless made under seal) does not of itself create a contractual obligation. There must be present some ‘consideration’ moving from the promisee, that is to say, the promisee must give, or promise to give, something of value in return for the promise. The requirement that consideration must be given for a binding promise introduces an element of reciprocity that is peculiar to the English law of contract and to the common law systems derived therefrom. We have therefore to ask how it was that consideration became the test of the actionability of informal promises, and this question is a difficult one to answer. In the sixteenth century, the courts were called upon to decide, case by case, whether good or sufficient reason existed to render an informal promise actionable, but the exact origin of the modern doctrine of consideration is by no means clear. Some have found the answer in the Quid pro Quo of Debt. This seems unlikely, since the essence of a Quid pro Quo was the benefit conferred upon the debtor, which cast upon him the duty to pay, whereas the essence of consideration is normally the detriment incurred by the promisee. Others have found it in the ‘bargain’ nature of the English law of contract, but this is to neglect the formative influence of consideration in this respect. A further possible explanation is that it is the result of the original tortious nature of the action of Assumpsit, the detriment being the damage resulting from the breach of the obligation. Of course, it is true to say that there is no logical connection between detriment in tort and detriment in contract, as the latter is the thing which ‘buys’ the counter promise or undertaking before any breach has occurred. But it may be that the clue lies in that delicate stage in the history of Assumpsit when it was sought to bring the action for a mere nonfeasance. If A promised B to build him a house and did nothing, wherein lay B’s hurt? Nowhere, unless he had already paid across the money for the building. So a plaintiff would have to show either resultant damage in an action for misfeasance, or the payment of a consideration in an action for nonfeasance. Cause and effect are not distinguished.

Yet another explanation is that consideration originates from the introduction into the common law of the concept of cause or ‘good consideration’ from the Court of Chancery, where it had been known since the very beginning of the sixteenth century. This must have become familiar to the common law judges when the passing of the Statute of Uses in 1535 brought much former ‘equitable’ business into their Courts. Whatever may have been its origin, the sufficiency of mutual promises came quickly to be recognized, each party’s promise being a detriment as it was a ‘charge’ upon him. Thus in Wichals v Johns in 1599,6 Popham CJ was able to say: ‘there is a mutual promise, the one to [page 20] the other: so that, if the plaintiff does not [perform his promise], the defendant may have his action against him: and so also the defendant shall be charged as to him; and a promise against a promise is a good consideration’. In this way mutual promises were fitted into the new pattern of English law, and the doctrine of consideration firmly established.

Subsequent developments The development of the law of contract during the eighteenth and nineteenth centuries in no way interfered with the basic notions thus laid down. But, during this period, the judges formulated the principles which now appear as those of the modern law. This process was a gradual one, but it gained momentum with the advent of the industrial revolution and the consequent need for more sophisticated rules to deal adequately with the expansion of trade and commerce. In this period, too, the treatise writers began to expound the judgments of the Courts in a systematic fashion and to impose on the English law of contract a conceptual structure.7 The nineteenth century, in particular, was a period of great innovation in and expansion of contract law. Nevertheless, this branch of the law is today by no means stagnant, and the principles enunciated by the Victorian judges are constantly being modified and adapted to meet the changes in economic and social conditions of the twentieth century

[page 21]

Comment 2.2.1 See Radan, Gooley, and Vickovich at 2.1–2.32.

INSTALMENT DEBTS — LEGAL REMEDIES AVAILABLE 2.3C

Taylor v Foster (1599) 78 ER 1034

Court: King’s Bench Division Facts: Taylor owed money to another person identified as ‘JS’. Taylor agreed with Foster that he would marry Foster’s daughter if Foster would pay JS the money that Taylor owed. The arrangement was that Foster would pay JS part of the money on a specified day and then pay the balance at the end of the particular year. Foster did not pay the first instalment and Taylor, within a short period of time, brought an action for damages. It should be noted that Taylor brought the action prior to the date for the payment of the balance of the money. It was argued that the action did not lie until the last day that full payment was due. Issue: The issue before the King’s Bench Division was whether damages were recoverable prior to the date that the second and final payment was due. Decision: The court found in favour of Taylor. Taylor did not have to wait until the last instalment was due before he could bring an action in damages and this was so notwithstanding the fact that the money that was promised to be paid was to be paid to a stranger — JS.

The Court [B]ecause the first £50 was not paid, he [Taylor], brought the

action. And after verdict, upon non assumpsit, it was moved, that the action lay not until the last day, as it is in debt upon an obligation payable at two days. … [F]or true it is, that so it is in debt upon an obligation, where the entire debt is to be recovered; but not in this action, or in covenant, where damages only are to be recovered. It was also held, that the action well lies for the plaintiff, although the £100 had been to be paid to a stranger, and not to himself; because the promise is unto him. Wherefore it was adjudged for the plaintiff.

Comment 2.3.1 See Radan, Gooley, and Vickovich at 2.12.

[page 22]

THE USE OF ASSUMPSIT AS A CONTRACTUAL ACTION 2.4C

Slade’s Case (1602) 76 ER 1072

Court: King’s Bench Division Facts: John Slade brought an action against Humphrey Morley, in which he asserted that he had sold a quantity of wheat and rye to Morley, who had promised to pay £16 for that produce. Morley failed to pay the agreed sum. In his defence, Morley pleaded non assumpsit and that Slade might have an ordinary remedy by action of debt, but not an action on the case. In the Full Court of the Exchequer Chamber it was held that Slade could elect to maintain either an action in debt or an action in assumpsit. Issue: The issue before the court was whether Slade’s action should be in debt or assumpsit. Decision: The court ruled that Slade was entitled to maintain the action and to recover damages and costs against Morley. This

decision was important, as it was found that assumpsit could emerge as a contractual action

The Court [T]he said Humphrey Morley did take upon him in manner and form, as in the declaration within written, within specified, or no, the said jurors are altogether ignorant, and thereof they ask the advice and consideration of the Court here, and if upon the whole matter aforesaid by the said jurors in form aforesaid found, it shall see in to the justices of the Court here, that these said Humphrey Morley did take upon him in manner and form, in the declaration within specified, then the said jurors say upon their oath aforesaid, that the aforesaid Humphrey Morley did take upon him in manner and form as the aforesaid John Slade within against him complaineth; and then they do asses the damages of the said John Slade, by occasion of not performance of his promise, and taking upon him within written, besides his charges and costs in the suit aforesaid by him expended to £16. … That although an action of debt lies upon the contract, yet the bargainor may have an action on the case, or an action of debt at his election. … [E]very contract executory imports in itself an assumpsit, for when one agrees to pay money, or to deliver anything, thereby he assumes or promises to pay, or deliver it, and therefore when one sells any goods to another, and agrees to deliver them at a day to come, and the other in consideration of thereof agrees to pay so much money as such a day, in that case both parties may have an action of debt, or an action on the case on assumpsit, for the mutual executory agreement of both parties imports in itself reciprocal actions upon the case, as well as actions of debt. … It was resolved, that [Slade] in this action on the case on assumpsit should not recover only damages for the special loss (if any be) which he had, but also for the whole debt, so that a recovery or bar in this action would be a good bar in an action of debt brought upon the same contract

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Comment 2.4.1 See Radan, Gooley, and Vickovich at 2.16–2.17.

ORIGINS OF THE DOCTRINE OF CONSIDERATION 2.5E

Baker, ‘Origins of the “Doctrine” of Consideration, 1535– 1585’

Source: J H Baker, ‘Origins of the “Doctrine” of Consideration, 1535– 1585’, in M S Arnold, T A Green, S A Scully and S D White (eds), On the Laws and Customs of England, University of North Carolina Press, 1981, pp 336–58. Extract: The extract from Baker’s article explores the origins of the concept known as consideration. An analysis is provided of whether the doctrine is the product of an unbroken development of a single idea or whether it was a combination of different ideas. Baker also deals with whether the doctrine of consideration has been influenced by canon or civil law and how it was used in the 16th century. No other doctrine in English law can compete with ‘consideration’ for the greatest diversity and complexity of historical explanations. Most of these explanations can be seen as attempts to answer two groups of questions. Was ‘consideration’ an unbroken development of a single idea from medieval times; or was there a break with medieval thought, and perhaps a combination of different ideas? Second, was it a wholly indigenous development; and, if so, was it an incidental consequence of the exigencies of the forms of action or a direct result of juristic speculation about contractual liability? Alternatively, was it something reflected or borrowed from the canon law or the civil law? And, if so, was the influence brought to bear on the common law directly through Renaissance humanism, or indirectly by way of the canonist chancellors or ecclesiastical

judges? It has been customary to seek some single answer to all these questions; but that approach in itself begs another question, for there is no reason to suppose that sixteenth-century lawyers were unanimous as to the nature, let alone the intellectual sources, of the doctrine of consideration. Indeed, the one safe assumption to begin with is that if the matter had been plain then, it would be more readily clarifiable now. Anyone who attempts to augment, even by a few pages, all that has already been written on this vexed subject must at the outset acknowledge his own foolhardiness; for, in the apt language of our old books, serra rette son foly demesne. Nevertheless, there is one large evidential stone still unturned. We have never known quite when or how ‘consideration’ appeared in the assumpsit declaration, nor what legal discussion (if any) accompanied the process of its becoming a material allegation. It would be idle to expect the discovery of this missing information to end all doubt and speculation concerning the origins of the idea of consideration, if only for the very good reason that the idea seems to have been present in English law long before it acquired the name. But whether we are endeavoring to trace the idea backward or forward from its first appearance in modem guise, our most convenient [page 24] focus must be the point at which the innominate idea lurking in older jurisprudence became a nominate ‘doctrine’ capable of shaping arguments and controlling decisions. Of course, the focus will not be very sharp. The common law was not in the habit of changing overnight, and its exponents were adept at concealing any overt evidence that it had changed at all. With reasonable confidence, however, we can reduce our concentration to the half century from 1535 to 1585. By the 1580s the reports are full of discussions about consideration; usually the matter arose on a motion in arrest of judgment, but it could also be raised by a demurrer, or writ of error, or special verdict, or argument upon the evidence. Objecting to the declaration ‘for want of sufficient consideration’ had become the lawyer’s first resort in attacking any assumpsit action that seemed to raise some arguable point, and the procedure was already raising a wide range of

questions both substantive and technical. Consideration had achieved the status of a doctrine, and could be defined as a profit to the defendant or a labor or charge to the plaintiff.8 A mere fifty years earlier there was no trace of ‘consideration’ in assumpsit declarations or in the few reported discussions relating to such actions. This fifty years, then, is the period on which attention must be fixed; and it is no accident that it is precisely the period that most previous speculation as to the history of consideration has studiously or unwittingly avoided.

Origin of the ‘consideration’ clause The first appearance of the in consideratione clause in the assumpsit declaration may be dated with reasonable precision to 1539. No contemporary, we may be sure, regarded it as a significant event; actions on the case were still in the fluid, experimental stage, and it would be another thirty years or more before the new phrase ousted its predecessors. The most we can hope to discover from the circumstances of its introduction is some sense of what ‘consideration’ originally meant and of the extent to which it represented new thinking about contractual liability. In order to draw the contrast, we must first step back a little before our chosen period. In the fifteenth century, assumpsit actions rarely proceeded beyond the optulit se stage, and therefore the precedents in the rolls are mostly of uncontested writs. Hundreds of these precedents recur in the most elementary form: ‘whereas, in return for [pro] a sum agreed or paid beforehand by Y, X had undertaken to build a house for Y, X failed to build the house’. The pro clause here bears more than a superficial resemblance to the later consideration clause, and a discussion in 1425 suggests that it did indeed reflect a notion of reciprocity: it was because the carpenter had been paid, or could bring debt for the agreed sum, that he himself should be liable in return. By the end of the century, however, the usual formula had become more sophisticated, with the pro clause demoted to a recital: ‘whereas, for a sum agreed or paid, A had agreed to build a house for B, and A had undertaken to build the house within a certain time, A had failed to build within the time as undertaken’. The undertaking had been gently separated from the principal bargain, to become in effect a promise to carry out the bargain on time or (in negligence cases) in a careful manner. This

verbal divorce was no doubt designed to avert technical objections to overlapping remedies, yet in so doing it [page 25] introduced a new problem. The undertaking now seemed imperfectly explained; it was no longer expressed to have been made in return for the sum of money, and it was linked to the bargain only by the implication inherent in the word ‘and’. Now, it may seem an absurd subtlety to hold that ‘and’ did not adequately fuse the bargain and the undertaking into one single transaction, but the dilemma arose inevitably from the object of the expanded formula: either the action was founded on the bargain or covenant itself, in which case it would probably fail on formal or evidential grounds, or it was founded on the collateral undertaking, in which case it had to be shown why that undertaking should be independently actionable. By the time of Henry VIII at the latest, pleaders seem to have been aware of this problem and increasingly they took care to avoid all mention of a precedent bargain or contract — by reciting a delivery rather than a sale of goods, or a discussion (colloquium) instead of a bargain — or else to give the undertaking an explanation of its own. The formulas they devised for the latter purpose are so varied as to defy classification, and include some phrases in which consideration is clearly foreshadowed;9 but the commonest device was to say that the undertaking had been given in return for (pro) a small sum of money, usually twelvepence. This last device was probably in many cases a fiction and is therefore hardly a true precursor of consideration, but the need for such a fiction shows the reality of the pleader’s dilemma, and his uneasiness about leaving the undertaking unexplained on the face of the record. The need for a connecting link between the recited bargain and the undertaking to perform it was the subject of an unreported King’s Bench decision in Marler v Wilmer (1539).10 The plaintiff complained in the mayor’s court at Coventry that he had sold goods to the defendant’s testator for a sum to be paid on request, and that after the testator’s death the defendant executor super se assumpsit et fideliter promisit to pay the sum but had not done so. The local court gave judgment for the plaintiff, upon

demurrer, and the defendant brought a writ of error in the King’s Bench. One of the points assigned for error was ‘that it does not appear in the declaration for what cause [quam ob causam] he made the aforesaid undertaking, either for money paid beforehand, or receipt of part of the aforesaid goods, and so ex nudo pacto non oritur actio’. He also objected that the action should have been debt, not ‘deceit on the case’, and that the plaintiff should have produced a deed. Unfortunately, the King’s Bench proceedings end with the scire facias to summon the defendant in error; but it is significant that already by 1539 it could be argued that no action would lie on an undertaking without ‘causa’ because it is nudum pactum. The declaration had to explain the under--taking, and it was not enough merely to recite a precedent bargain. The consideration required for an executor’s promise would continue to give difficulty throughout the century, but the relatively simple objection in 1539 would have applied with equal force to the common declaration in assumpsit for the price of goods. Some linking phrase was needed between the recital and the assumpsit clause to explain the undertaking, and it can hardly be a mere coincidence that within a year or two of Marler v Wilmer several new formulas had been invented for the purpose. The most common of the new devices can best be described as [page 26] a quid pro quo clause. It was used mainly in actions to recover the price of goods, which had become the principal function of assumpsit by 1540. The plaintiff alleged a sale of goods for a certain sum, or a delivery of goods worth a certain sum, ‘for which goods [pro quibusquidem bonis]’ the defendant undertook to pay. Thus the goods were treated as the quid ‘pro quo’ the undertaking was given. The buyer could use the same formula, alleging that the promise to deliver was made pro the money paid.11 For over twenty years the quid pro quo clause dominated assumpsit declarations, and bid fair to jostle consideration out of use. The consideration clause that appeared in 1539 performed exactly the same linking function as the quid pro quo clause. At first it was simply an alternative, chosen whenever it seemed more apt or elegant than pro. The

first recorded case illustrates this very well. The plaintiff complained that, whereas the defendant’s wife had before marriage been indebted to the plaintiff for board, lodging, and a loan, the defendant in full knowledge afterwards, in consideration of his impending marriage and for twelvepence paid to him, undertook to pay off the debt, but had not done so.12 The plaintiff’s counsel had seen fit to make use of the fictional shilling in addition to the true cause, and so the in consideratione clause was used to avoid the repetition of pro, a word much more appropriate to introduce a payment than a marriage.13 In the next instance on the King’s Bench rolls, the undertaking to pay was in consideration of wrongs done and pro twelvepence paid; again in consideratione is a companion to pro, and it is more apt to describe a motive founded on something past.14 In a third early case, the two phrases occur together as past and present moving causes, where a woman had asked a man to ride on a journey with her, and for (pro) his company and in consideration that he had lent her money, she promised to give him a ring.15 In the decade after 1540 there are at least thirty-two instances of consideration clauses in the King’s Bench rolls, but there is little uniformity in their form or function. In one back-to-front case the assumpsit was the consideration for the plaintiff’s promise to perform.16 In nearly all the cases, however, the consideration was used to explain a promise to pay money. It might be a past act (often the delivery of goods), or a present bargain, or a future act. Sometimes it was combined with the word pro, as in the phrase pro et in consideratione17 [page 27] or the general, meaningless pro diversis considerationibus.18 As a mere alternative to pro it could mean ‘in return for’, and this sense of reciprocity is underlined in such phrases as in consideratione et recompensatione.19 But it had more subtle connotations of its own: there was the sense of causa, itself ambiguously hovering between the two shades of meaning ‘because of’ and (more subjectively) ‘having taken into consideration’ or ‘being moved by’. The latter sense is clearly manifest in the general form pro diversis aliis causis et considerationibus ipsum E. adtunc et ibidem moventibus.20 It is

therefore impossible to assert that the nascent phrase represented precisely the notion of quid pro quo or causa. There is a very strong case, on the other hand, for saying that it actually combined both notions, and that its triumph over the various pro clauses was eventually secured by its convenient ambivalence.

Attempts to delimit consideration On turning to the reports, we meet with an apparent lack of concern with general principles of liability. Not only are there no discussions of the nature of ‘consideration’ before 1560, but when the discussions do begin the profession seems already to be engulfed in a torrent of complex learning gushing out in every direction from no apparent source. Ironically, the commonest types of assumpsit — actions for the price of goods or services — received the least attention. Although consideration had begun in such actions, it was by now thought unnecessary for them and if alleged could not be traversed; under such liberal conditions even a conditional gift of money could be enforced. We have seen that consid--eration in these common cases served to link circumstances that had always given rise to liability with the undertaking that enabled assumpsit to be brought instead; whatever problems that caused with respect to overlapping remedies, they were not problems relating to the nature of consideration. The doubts were not as to the existence of liability, but as to the form of the remedy and the mode of proof; in the seventeenth century common counts consideration was to become virtually meaningless, certainly unimportant. It was outside the context of sale that consideration came to be of fundamental importance, because there was no preexisting substantive law of contractual liability and so consideration not only explained the undertaking, but thereby determined whether an action would lie for its breach. This was the context in which discussion began as to what constituted a ‘good’ consideration. Would a merely subjective motive (such as affection), or a ‘continuing’ motive (such as kinship), give binding force to an undertaking; or must the plaintiff have done or promised something in return? If the plaintiff had done something in return, must it have been done in return for the promise; or would it be sufficient if it had been done at the defendant’s request, or simply for the defendant’s benefit? If the plaintiff had not done, but promised, something in return, was it necessary that he should

subsequently have performed his promise; or would it be enough that the promise would have been performed if the defendant had not broken his promise? [page 28]

Adequacy and contemporaneity The courts do not seem ever to have been troubled about economic disparity between consideration and promise; it was a common maxim that for a penny consideration a man could bind himself for a hundred pounds. In the earlier cases past consideration is not unusual,21 and there are also several examples of the vague general clause pro aliis considerationibus tacked on to a small prepayment.22 By the 1580s, however, it was common learning that consideration had to be something of value; and it was a standard objection to the consideration that it was ‘insufficient’ or ‘past’. That position may well have been reached in a haphazard way, as defense lawyers persuaded courts to reject particularly dubious kinds of moving cause; but its attainment is significant as marking the emergence of a ‘doctrine’ of consideration. The choice of direction open to the courts was provided by the ambiguity of the word ‘consideration’. In the causa sense it might more easily encompass motives, and things past or continuing, whereas in the quid pro quo sense it called for some reciprocal act done or promised. Common lawyers were not wont to distinguish these senses, and in the law of uses it was already the practice to speak of ‘insufficient cause’ to denote the absence of quid pro quo. …

Mutual promises It has been generally assumed that the question whether a promise could be consideration for a promise was the last important question to be asked, and that its answer in the affirmative finally transformed consideration into a doctrine based on a consensual view of contract. The hurdle, as historians have seen it, was a logical one: a promise was only of value if binding, and to say that it was binding because it was given in consideration of another promise would trap one in a vicious circle from which the only escape would be to suppose that the reciprocal promises somehow breathed life

into each other at the same instant, so that they could support each other. Unfortunately for this view, no contemporary discussion has been found in which the problem is treated in those terms. One recent writer has concluded from this that the problem never entered anyone’s head, and that ‘all talk about the recognition of “wholly execu--tory” “bilateral”, or “consensual” contracts in [the sixteenth] century is wholly misconceived’.23 The only contemporary problem, on this view, was whether the plaintiff had to aver the performance of his own promise; and the answer lay in the ‘sharp distinction’ between a promise and a future act. If A promised B ten pounds if B would build a house, then B had to show that he had built the house before he could sue for the ten pounds; but if A promised B ten pounds in consideration that B then and there promised to build a house, then B’s promise was a sufficient consideration to bind A. This was not so [page 29] much a consideration problem as that of determining whether promises were dependent or independent: a problem eventually to be solved by a mass of abstruse learning centered upon Serjeant Williams’s notes to Pordage v Cole and then lost (in England) in the confused law about conditions, warranties, and discharge by breach.24 Neither approach seems entirely satisfactory. It is true that mutual promises are found at an early date,25 and that the discussions are not in terms that anyone affected toward the traditional story would wish. But it is equally true that the reported cases do reveal a consideration problem; indeed, the three most extensive early discussions of consideration arose from mutual promises. …

Was consideration old law or new? By 1600 there were so many decisions touching the doctrine of consideration that recourse to earlier ideas was seldom necessary. To that extent the doctrine of consideration was plainly novel, so novel in fact that none of the cases after 1568 was in print until the seventeenth century. In the earliest discussions, however, lawyers saw no incongruity in citing Year Book cases for propositions about consideration: in the middle of

the sixteenth century, Brooke and Plowden explained the non-feasance cases of 1409 and 1425 as showing that assumpsit would not lie without consideration; Wyndham, J, in 1581 adapted a definition of consideration from a remark of Serjeant Jenney in 1476;26 and, in 1588, Coke professed to have based his ‘charge or benefit’ definition on the marriage-money case of 1477.27 Should we conclude that consideration was but an amalgam of old ideas in a new guise, or were lawyers trying to disguise, or at least authenticate, completely new ideas? Of one thing we may be sure: the law of consideration was English. Of course, we know that St German had some slight acquaintance with the canonist learning about causa, and that Plowden was able to quote a brief civilian definition of nudum pactum.28 But these superficial flirtations with Romanism had no noticeable effect on the history of consideration, except perhaps on Plowden’s notion of ‘deliberation’ or intention to be bound; but that notion bore little fruit until Lord Mansfield tried unsuccessfully to revive it two centuries later, and it is now treated by English lawyers as a requirement distinct from consideration. …

Conclusion We began with a warning against an undue desire for historical neatness. When the legal historian sees confusion or inconsistency, unless it is of his own making, he is probably looking at law being made. If a legal historian of the twenty-fourth century purported to reveal the perfect clarity of, say, the English doctrine of fundamental breach in the 1960s and [page 30] 1970s, he would be a bad historian; we of the 1960s and 1970s know how many plausible ways there are of looking at the same problem, but we cannot know (as our successor will) which view will ultimately prevail, and so the state of uncertainty is itself the historical truth. It rather looks as though ‘consideration’ was in the same plight in the period we have examined. Most lawyers could identify the questions without difficulty, but the search for a clear answer was complicated and delayed in practice by divergent views about the forms of action, by the infinite variety of special

declarations, and by the tireless ingenuity of opposing counsel. The survival of older ways of settling disputes had rendered a detailed law of contractual liability unnecessary, or at least unattainable, before the establishment of assumpsit for nonfeasance. The comfortable certainty of that old world ended when the special declarations in case, with their myriad permutations of facts, began to throw up endless questions of law that had never been posed before. These new questions required new, more precise formulations of shadowy medieval notions, and the nascent learning suddenly converged in the 1560s upon a simple phrase which was calculated merely to avoid or deflect a number of disparate problems raised by the development of assumpsit declarations. Contemporary sources suggest that the only novelty lay in the refinement of earlier ideas; for the spiritual sources of the law of consideration were the two simple, timeless, and ubiquitous moral principles that bargains should bind both parties and that men should be held to promises on which others have actively relied. The technical ‘doctrine of consideration’ in which these principles came to be enshrined in the time of Elizabeth I was occasioned by nothing more arcane than the fertile ambiguity resulting from a little shift of wording by the pleader. It is true enough that the life of the law has not been scholastic logic: it has been the conversion of loose words into jargon.

Comment 2.5.1 See Radan, Gooley, and Vickovich at 2.20–2.32.

1.

By the middle of the fifteenth century, however, the Courts had allowed an exception in the case of an executory contract for the sale of goods. The ‘property’ in the goods was deemed to pass upon sale, even though no delivery had been made; and this was of sufficient benefit to the purchaser to enable him to be sued by the vendor for the price.

2. 3.

Unless the plaintiff produced a sealed instrument. 1216–1272.

4. 5.

For a different view of the origin of Case, see S F C Milsom, ‘Not Doing is No Trespass: A View of the Boundaries of Case’ [1954] Cambridge Law Journal 105. (1602) 76 ER 1072.

6. 7.

(1599) 78 ER 938. See A W B Simpson, ‘Innovation in Nineteenth Century Contract Law’ (1975) 91 Law Quarterly

Review 247. 8. 9.

Webb’s Case (1577) 74 ER 763; Richards v Bartlet (1584) 74 ER 17. Eg, Browne v Cornely (1533), King’s Bench 27/1086, m 28.

10. 11.

King’s Bench 27/1111, m 64. Eg, Grey v Botte (1544), King’s Bench 27/1133, m 105 (judgment for the plaintiff).

12. 13.

Harvy v Stone (1539) King’s Bench 27/1112, m 65. Marriage had often been treated as a ‘consideration’ to raise a use, and it was more accurate to describe it so than as quid pro quo because there were doubtless other reasons for the marriage than the payment of the debt.

14.

15.

Phyllyp v Heeth (1540) KB 27/1116, m 23d. For the association of consideration with causes past or ‘precedent’, see C St German, Doctor and Student, ed T F T Plucknett and J L Barton, Selden Society, vol 91 (London, 1975), p 229. St German distinguishes between an ‘accord’ (for past wrongs) and a contract. The first mention of consideration in an assumpsit action occurs not in a declaration, but in a plea of accord: Hewton v Forster (1536) KB 27/1099, m 76. Turfote v Pytcher (1543) King’s Bench 27/1130, m 104.

16. 17.

Owtrede v Whyte (1546) King’s Bench 27/1138, m 24d (judgment for the plaintiff). Eg, Rent v Danyell (1549) King’s Bench 27/1150, m 104.

18.

Usually added to a money payment: eg, Cawenfeld v Elder (1546) King’s Bench 27/1137, m 113d; Pynnok v Clopton (1547) King’s Bench 27/1141, m 79; Holmes v Harryson (1549) King’s Bench 27/1149, m 32; Norman v Moore (1549) King’s Bench 27/1149, m 117. Pyrry v Appowell (1545) King’s Bench 27/1134, m 67d.

19. 20. 21.

Newman v Gybbe (1549) King’s Bench 27/1152, m 135. Eg, Phyllyp v Heeth (1540) King’s Bench 27/1116, m 23d (injuries done); Busshewell v Rye (1546) King’s Bench 17/1138, m 67d (money previously received); Tyll v Brockhouse (1548) King’s Bench 27/1147, m 103d (goods previously taken).

22.

In 1584 it was held that such general consideration could not raise a use, because it did not appear whether it was sufficient (which Coke interpreted as requiring quid pro quo) (Mildmay v Standysh [1584] 1 Rep 175, 76 ER 379). A W B Simpson, A History of the Common Law of Contract (Oxford, 1975), pp 461, 467.

23. 24. 25.

There is a valuable account in S J Stoljar, A History of Contract at Common Law, Canberra, 1975, pp 147–63. Perhaps the earliest is Fyneux v Clyfford (1517) King’s Bench 27/1026, m 76.

26. 27.

Lord Gerard’s Case (1581) Lincoln’s Inn MS Misc 361, fol 2IV. Stone v Withepoole (1588) Owen 94, 74 ER 924.

28.

St Germain, Doctor and Student, ed T F T Plucknett and J L Barton, Selden Society, vol 91 (London, 1975), pp 228–9.

[page 31]

3 CONTRACT THEORY

INTRODUCTION 3.1 This chapter examines theoretical approaches to, and critiques of, contract law. Contract theory seeks to explain the nature of contractual obligations and to examine the justifications for particular doctrines or even for a discrete body of law about contracts. Critical positions on contract law are generally motivated by ideological perspectives on social, economic, or political issues. The Canadian legal theorist, Stephen A Smith, in ‘Two Questions for Contract Theory’ (see 3.2E) poses two fundamental questions concerning the law on contracts. The first is the ‘analytic’ question, the answers to which indicate what kinds of events give rise to contractual obligations and what could be considered to be the proper content of such obligations. The second is the ‘normative’ question, the answers to which reveal why contracts should be recognised and enforced and why there needs to be a separate body of law about contracts at all. One of the most prominent schools of thought concerned with the ‘analytic’ question is grounded in the ‘promissory’ nature of contractual obligations. Charles Fried, in ‘The Moral Obligation of Promise’ (see 3.3E) argues that promises are a sound basis for contracts since they are based on individual free will, autonomy, and trust. According to the ‘promissory’ theories, promises are binding because the parties are morally bound to perform and to expect performance from the other party. In contrast, ‘reliance’ theorists contend that the basis of contract law is the concept of

reliance. They argue that a promise is binding because it induces a reasonable reliance by the party to whom the promise is made, and that a party that reasonably relies on a promise should be compensated if they suffer a loss. On the other hand, according to the ‘transfer’ theorists, a contract can essentially be seen as a transfer of rights. Prominent transfer theorist Randy E Barnett argues, in ‘A Consent Theory of Contract’ (see 3.4E) that contractual liability arises when a promisor consents to the transfer of his or her existing rights to another person, thereby providing the basis for the enforcement of the promise by courts. The ‘normative’ question, concerned with why contracts are recognised by the law, has attracted a number of theoretical perspectives over time. They include traditional utilitarian theories and more contemporary rights-based approaches. In this vein also are the theories that emerged from the Critical Legal Studies movement of the early 20th century and the feminist school. An example of the feminist worldview is provided by Linda Mulcahy in ‘Feminist Perspectives on Contract Law’ (see 3.5E). [page 32]

THE NORMATIVE AND ANALYTIC QUESTIONS FOR CONTRACT LAW 3.2E

Smith, ‘Two Questions for Contract Theory’

Source: S A Smith, Contract Theory, Oxford University Press, Oxford, 2004, pp 42–9. Extract: The extract from Smith’s book discusses the analytic and normative questions that any contract theory should address. The analytic question deals with the essential characteristics of contractual obligations. The normative question deals with why legal force should be given to contractual obligations. As Smith observes, theorists give various answers to both questions and a particular contract theory will ideally contain a combination of answers to each of the questions.

Two questions for contract theory It would be convenient if contract theories could be classified on the basis of a single criterion. Something like: does the theory regard contracts as self-imposed obligations or as obligations that are imposed by law? It would then be possible to neatly line up all theories according to how they answered this question. Unfortunately, contract theories are more complex than that. … [C]ontract theories, at least insofar as they are complete theories, address two quite different sorts of questions, and so must be categorized according to two criteria. Failing to distinguish between these questions is probably the most common source of confusion in contemporary discussions of contract theory. The first question that a complete theory of contract must answer is an analytic question about the nature of contractual obligations. The second question is a normative question about the justification, if any, for contractual obligations. …

The analytic question The analytic question is a ‘what’ question. It asks: what are the essential characteristics of a contractual obligation? Specifically, how is a contractual obligation like or unlike the obligations given legal force by tort law, unjust enrichment law, the law of trusts, and so on? Another way of describing the analytic question is that its answer tells us what sorts of events give rise to a contractual obligation and what the content of the obligation thus created is. Most contract theories can be placed into one of three broad categories (or a mixture of these categories) according to how they answer the analytic question. According to the first category, promissory theories, contractual obligations are promissory obligations or another closely related kind of voluntary obligation, such as an agreement-based obligation. This understanding views contractual obligations as essentially self-imposed: the obligation is created by communicating an intention to undertake that same obligation. The obligation thus created is regarded as a duty to do what was undertaken — in other words, as an obligation to perform a

promise. Promissory theories provide the traditional, and probably still the orthodox, answer to the analytic question about contract law. [page 33] Reliance theories make up the second category of responses to the analytic question. As the name suggests, these theories regard contractual obligations as amounting to reliance-based obligations. More specifically, a contractual obligation is regarded as an obligation to ensure that those who rely upon us are not made worse off as a result. In contrast to the will-based understanding supplied by promissory theories, reliance theories therefore regard contractual obligations as imposed-by-law. In this understanding, a contractual obligation may arise when one person induces another to rely, even if the former did not intend to undertake an obligation. It follows that reliance theories regard contract law as closely related to, if not actually a part of, tort law. In each, obligations are imposed on persons because of what they do (eg, driving a car, making a reliance-inducing statement) and not because of what they have intended. The third, and at present least well-known, answer to the analytic question about contract law is provided by transfer theories. These theories suppose that the beneficiary of a contract has a right to the performance of a future act, which right has arisen and is owing because the other party handed over or gave that right (transferred it) to the beneficiary (similar to what happens when a contractual right is ‘assigned’ to another party). As such, transfer theories (unlike promissory ones) do not understand the right in question to have been created by the contract. Rather, the right arises because it has been transferred to the beneficiary in the same way that a tangible piece of property — let’s say a watch — might be transferred. Unlike a watch, though, the transferred right is intangible. Moreover, the duty that is created after the transfer is not a negative one such as, ‘don’t interfere with the watch’. Instead, it is a positive one that commands performance of an action. Loosely stated, the imperative might be: ‘you transferred that right to performance to me, and it’s mine now — so give it to me’. As such, the transferor has an obligation not to interfere with the right of the transferee to receive her performance. Therefore, just as occurs

with reliance theories, the ‘contractual’ obligation collapses here into the tort obligation that requires one to respect another’s rights. The promissory, reliance, and transfer theories of contract are essentially different views about how to categorize contract law. Determining what sorts of events give rise to contractual obligations and what is the content of a contractual obligation determines where contract law fits within private law. Each group of theories thus gives a different answer to the question of what makes contract law contract law. If contractual obligations are promissory, then contract law is an autonomous category of legal liability. On the other hand, if contractual obligations are reliance-based, then it is more likely that they are closely related to (if not actually a part of) tort law or another non-promissory basis of liability. In this view, contract law as a distinct category disappears. … Finally, if it is transfers that give rise to contractual obligations, it is the legal categories of property and tort that should apply. Property rules would logically inform the transfer of the right (as occurs with the regulating of gifts, testamentary dispositions, etc), and would oversee the formation of the contract. As for the rules of contract liability, we would look to the law of tort. Describing the analytic question as giving rise to what are essentially classificatory issues might be thought to diminish its importance. Nothing could be further from the truth. Just as our knowledge of the natural world is explained primarily through classificatory schemes [page 34] (eg, mammals/canines/bull dogs), so too our knowledge of the law is explained through classificatory schemes. It is, of course, appropriate to argue about what labels are adopted, about what goes where, and even about the entire basis of a classificatory schema (eg, ‘legal’ schemes as opposed to, say; schemes based on economic or sociological criteria). But to argue against legal classification per se is like arguing against legal knowledge. It should also be kept in mind that classification is practically significant in law. Most obviously; if courts fail to relate like to like, and to distinguish unlike from unlike, they may fail to achieve the most elementary requirement of justice: treating like cases alike. Moreover, even scholars

who purport to be solely interested in normative issues cannot avoid taking a position on analytic questions. To state, for example, that contract law is, or should be, informed by a certain normative principle assumes that we know what qualifies as contract law — which is an analytic question. Finally, classification is critical in ensuring the efficient dispensation of justice: if a judge knows that a particular case is a contract case rather than a tort case, the judge will also know, without further thought, that a large number of consequences follow more or less automatically. Without categories, judges must decide every case from first principles. The same applies to the lawyer or citizen trying to learn the law. In short, categories matter very much for both the understanding and the practice of law.

The normative question In addition to answering the analytic ‘what’ question, a complete theory of contract must also answer a justificatory or normative ‘why’ question. The normative question, simply stated, is this: why give legal force to contractual obligations? Stated in broader terms, the question is: why have a law of contract? What is the justification, if there is one, for maintaining this institution? Answering the analytic question does not answer this normative question, at least not in any straightforward way. A conclusion that contractual obligations are, for instance, promissory obligations does not tell us why promises should be legally enforced, or if they should be enforced at all. Perhaps promises should be regarded as creating at most only moral obligations, akin to obligations to give to charity. … [M]any contract theorists reach exactly this conclusion. Most contract theories can be placed into one of two broad categories according to the answers they give to the normative question: utilitarian theories or rights-based theories. Utilitarian theories justify contract law on the ground that it promotes utility, broadly defined. Theories that justify contract law in terms of its beneficial effects on welfare, wealth, autonomy, close relationships, or any other (alleged) aspect of human well-being are utilitarian theories in the broad sense in which the term is used here. The essence of a utilitarian theory of contract law, so understood, lies not in a particular understanding of utility — of the ‘good’ — but in the theory’s view that contract law is essentially a vehicle for promoting the good, however defined.

The best known and most developed utilitarian theories of law are ‘efficiency’ theories. Efficiency theories regard contract law as an instrument for promoting the overall welfare, subjectively understood, of society’s members. In this view, the justification for contract law is that it makes people better off in terms of how they themselves understand the notion of [page 35] ‘better off’. Efficiency theories of contract are therefore closely linked to the traditional version of utilitarianism, which evaluates actions according to how much happiness, or preference-satisfaction, they produce. Other utilitarian theories … regard contract law as promoting closer social relationships, a particular distribution of wealth, or conditions favourable to the achievement of individual autonomy. The second category of answers to the normative question is found in rights-based theories. These theories justify contract law on the basis of individual rights. In this view, contractual obligations are grounded in respect for individual rights, and contract law gives legal force to such rights by enforcing them directly or by attaching legal consequences to their infringement. Insofar as the latter approach is taken, contract law is seen as giving force to contractual rights through a scheme of corrective justice — understood here in the broad sense of a duty to repair harms that one has caused. An order of damages, in particular, is justified on the ground that this defendant, having infringed this plaintiff’s right to the performance of a contract, has a duty in justice to compensate the plaintiff. The conclusion that a damages order would increase social welfare (perhaps by establishing incentives for future contracting parties to act in welfare maximizing ways) is therefore irrelevant in this approach. In principle, rights-based theories of contract can be further distinguished according to how they understand the rights that contract law upholds. In practice, though, nearly all rights theories regard contractual rights as classically individualist or ‘negative-liberty’ rights. In other words, contract rights are rights to non-interference with person, property or liberty. As for the content of contractual rights — whether it is a right to

performance, or compensation, or whatever — the answer provided by rights-based theories depends on which answer is given to the analytic question discussed earlier. But the most common and … the most plausible rights-based view regards contractual rights as rights to the performance of a promise. Rights-based theories of contract law remain the traditional and, at least among legal actors, the orthodox way of answering the normative question about contract law.

The link between analytic and normative questions The main reason for distinguishing analytic from normative questions is that the answer to one does not determine, at least in a straightforward way, the answer to the other. Thus, two theorists might agree that contracts are promises, but then disagree as to whether the justification for enforcing promises is utilitarian or rights-based. Similarly, two theorists might agree that contractual obligations are justified on rights-based grounds, but then disagree as to whether those obligations arise from promises, reliance, or transfers. In short, any combination of answers to the respective questions is possible in principle. … A further advantage of separating analytic from normative questions … [is that the] theoretical issue raised by a particular doctrine is often exclusively, or at least primarily, either analytic or normative. The primary issue raised by the rules on specific performance, for example, is the significance of these rules for why contracts are enforced — a normative question. [page 36] With respect to the rules on estoppel, on the other hand, the primary issue is the significance of these rules for understanding the events that give rise to contractual obligations — an analytic question. Separating analytic and normative questions at this stage makes issues of this kind easier to understand. All this said, it must be kept in mind throughout that there are obvious and important connections between analytic and normative questions. To

provide a justification for contractual obligations, it is necessary to know what sort of a thing a contractual obligation is. A justification justifies something: the substance of the ‘something’ is the focus of the analytic question. Just as the analytic question informs the normative one, the reverse is also true — at least if one accepts the argument … that a good theory of contract must account for the law’s claims to be morally justified. Assuming this argument is persuasive, the list of possible answers to the analytic question must be limited to the kinds of obligations that might plausibly be considered moral obligations — ones that a law-maker might sincerely think the state is justified in enforcing. The link between analytic and normative questions is arguably even stronger than this. Although the best known answers to the analytic question are prima facie open to both utilitarian and rights-based justifications, in practice scholars who defend particular answers to the analytic question also hold that, in the end, there is only one good justification (the justification they defend) for the obligation they have identified. For example, Charles Fried, whose answer to the analytic question is that contracts are promises, argues that although both utilitarian and rights-based justifications for promissory obligations exist, ultimately only a rights-based justification works1. In principle, such an approach must be correct: the best theory of contract will answer both the analytic and normative questions and it will tie its answers together in such a way that they cannot be separated. For these reasons, it is impossible to maintain a rigid distinction between analytic and normative questions. … But the distinction is a useful one for explanatory purposes. …

Comment 3.2.1 See Radan, Gooley, and Vickovich at 3.2–3.4.

PROMISE AS THE THEORETICAL BASIS OF CONTRACT LAW

3.3E

Fried, ‘The Moral Obligation of Promise’

Source: C Fried, Contract as Promise, A Theory of Contractual Obligation, Harvard University Press, Cambridge MA, 1981, pp 14–17. Extract: The extract from Fried’s book is an example of an answer to Smith’s analytic question regarding contract as based upon freely agreed promises.

[page 37] The moral obligation of promise1 Once I have invoked the institution of promising, why exactly is it wrong for me then to break my promise? My argument so far does not answer that question. The institution of promising is a way for me to bind myself to another so that the other may expect a future performance, and binding myself in this way is something that I may want to be able to do. But this by itself does not show that I am morally obligated to perform my promise at a later time if to do so proves inconvenient or costly. That there should be a system of currency also increases my options and is useful to me, but this does not show why I should not use counterfeit money if I can get away with it. In just the same way the usefulness of promising in general does not show why I should not take advantage of it in a particular case and yet fail to keep my promise. That the convention would cease to function in the long run, would cease to provide benefits if everyone felt free to violate it, is hardly an answer to the question of why I should keep a particular promise on a particular occasion. David Lewis has shown2 that a convention that it would be in each person’s interest to observe if everyone else observed it will be established and maintained without any special mechanisms of commitment or enforcement. Starting with simple conventions (for example that if a telephone conversation is disconnected, the person who initiated the call is

the one who calls back) Lewis extends his argument to the case of language. Now promising is different, since (unlike language, where it is overwhelmingly in the interest of all that everyone comply with linguistic conventions, even when language is used to deceive) it will often be in the interest of the promisor not to conform to the convention when it comes time to render his performance. Therefore individual self-interest is not enough to sustain the convention, and some additional ground is needed to keep it from unraveling. There are two principal candidates: external sanctions and moral obligation. David Hume sought to combine these two by proposing that the external sanction of public opprobrium, of loss of reputation for honesty, which society attaches to promise-breaking, is internalized, becomes instinctual, and accounts for the sense of the moral obligation of promise.3 Though Hume offers a possible anthropological or psychological account of how people feel about promises, his is not a satisfactory moral argument. Assume that I can get away with breaking my promise (the promisee is dead), and I am now asking why I should keep it anyway in the face of some personal inconvenience. Hume’s account of obligation is more like an argument against my keeping the promise, for it tells me how any feelings of obligation that I may harbor have come to lodge in my psyche and thus is the first step toward ridding me of such inconvenient prejudices. [page 38] Considerations of self-interest cannot supply the moral basis of my obligation to keep a promise. By an analogous argument neither can considerations of utility. For however sincerely and impartially I may apply the utilitarian injunction to consider at each step how I might increase the sum of happiness or utility in the world, it will allow me to break my promise whenever the balance of advantage (including, of course, my own advantage) tips in that direction. The possible damage to the institution of promising is only one factor in the calculation. Other factors are the alternative good I might do by breaking my promise, whether and by how many people the breach might be discovered, what the actual effect on confidence of such a breach would be. There is no a priori reason for

believing that an individual’s calculations will come out in favor of keeping the promise always, sometimes, or most of the time. Rule-utilitarianism seeks to offer a way out of this conundrum. The individual’s moral obligation is determined not by what the best action at a particular moment would be, but by the rule it would be best for him to follow. It has, I believe, been demonstrated that this position is incoherent: Either rule-utilitarianism requires that rules be followed in a particular case even where the result would not be best all things considered, and so the utilitarian aspect of rule-utilitarianism is abandoned; or the obligation to follow the rule is so qualified as to collapse into act-utilitarianism after all. There is, however, a version of rule-utilitarianism that makes a great deal of sense. In this version the utilitarian does not instruct us what our individual moral obligations are but rather instructs legislators what the best rules are. If legislation is our focus, then the contradictions of rule-utilitarianism do not arise, since we are instructing those whose decisions can only take the form of issuing rules. From that perspective there is obvious utility to rules establishing and enforcing promissory obligations. Since I am concerned now with the question of individual obligation, that is, moral obligation, this legislative perspective on the argument is not available to me. The obligation to keep a promise is grounded not in arguments of utility but in respect for individual autonomy and in trust. Autonomy and trust are grounds for the institution of promising as well, but the argument for individual obligation is not the same. Individual obligation is only a step away, but that step must be taken. An individual is morally bound to keep his promises because he has intentionally invoked a convention whose function it is to give grounds — moral grounds — for another to expect the promised performance. To renege is to abuse a confidence he was free to invite or not, and which he intentionally did invite. To abuse that confidence now is like (but only like) lying: the abuse of a shared social institution that is intended to invoke the bonds of trust. A liar and a promise-breaker each use another person. In both speech and promising there is an invitation to the other to trust, to make himself vulnerable; the liar and the promise-breaker then abuse that trust. The obligation to keep a promise is thus similar to but more constraining than the obligation to tell the truth. To avoid lying you need only believe in the truth of what you say when you say it, but a promise binds into the future, well past the

moment when the promise is made. There will, of course, be great social utility to a general regime of trust and confidence in promises and truthfulness. But this just shows that a regime of mutual respect allows men and women to accomplish what in a jungle of unrestrained self-interest could not be accomplished. If this [page 39] advantage is to be firmly established, there must exist a ground for mutual confidence deeper than and independent of the social utility it permits. The utilitarian counting the advantages affirms the general importance of enforcing contracts. The moralist of duty, however, sees promising as a device that free, moral individuals have fashioned on the premise of mutual trust, and which gathers its moral force from that premise. The moralist of duty thus posits a general obligation to keep promises, of which the obligation of contract will be only a special case — that special case in which certain promises have attained legal as well as moral force. But since a contract is first of all a promise, the contract must be kept because a promise must be kept. To summarize: There exists a convention that defines the practice of promising and its entailments. This convention provides a way that a person may create expectations in others. By virtue of the basic Kantian principles of trust and respect, it is wrong to invoke that convention in order to make a promise, and then to break it.

Comment 3.3.1 See Radan, Gooley, and Vickovich at 3.6–3.11.

TRANSFER OF PROPERTY BY CONSENT AS THE THEORETICAL BASIS OF CONTRACT LAW

3.4E

Barnett, ‘A Consent Theory of Contract’

Source: R E Barnett, ‘A Consent Theory of Contract’ (1986) 86 Columbia Law Review 269 at 270–1, 297–300, 303–5, and 319–20. Extract: The extracts from Barnett’s article provide an example of an answer to Smith’s analytic question that regards contract as the transfer of rights based upon the consent of the transferor.

A consent theory of contract A consent theory posits that contractual obligation cannot be completely understood unless it is viewed as part of a broader system of legal entitlements. Such a system, based in morality, specifies the substance of the rights individuals may acquire and transfer, and the means by which they may do so. Properly understood, contract law is that part of a system of entitlements that identifies those circumstances in which entitlements are validly transferred from person to person by their consent. Consent is the moral component that distinguishes valid from invalid transfers of alienable rights. A consent theory of contract explains why we generally take an ‘objective’ approach to contractual intent and why we deviate from this approach in some situations. In addition, a [page 40] consent theory validates the enforcement of certain commitments where no bargained-for exchange exists — such as those supported by ‘nominal considera--tion’ — and thereby rescues these useful legal arrangements from their present uncertain status in contract law. By providing a clear, common-sense test of enforceability that avoids the need for courts to distinguish ‘reasonable’ from ‘unreasonable’ reliance in determining whether a contract was formed, a consent theory enables parties to calculate better who bears the risk of reliance and, hence, facilitates reliance on interpersonal commitments. Finally, a consent

theory’s account of contractual obligation explains and justifies the historically recognized defenses to contractual obligation. … [C]ontract law concerns enforceable obligations arising from the valid transfer of entitlements that are already vested in someone, and this difference is what makes consent a moral prerequisite to contractual obligation. The rules governing alienation of property rights by transfer perform the same function as rules governing their acquisition and those specifying their proper content: facilitating freedom of human action and interaction. Freedom of action and interaction would be seriously impeded, and possibly destroyed, if legitimate rights holders who have not acted in a tortious manner could be deprived of their rights by force of law without their consent. Moreover, the moral requirement of consent mandates that others take the interests of the rights holder into account when seeking to obtain the rights she possesses. … Consequently, the consent of the rights holder to be legally obligated is the moral component that distinguishes valid from invalid transfers of alienable rights in a system of entitlements. It is not altogether novel to suggest that consent is at the heart of contract law. … In a modern society the chain between initial acquisition of resources and their ultimate consumption can be quite long and complicated. While controversies may exist, even among those who acknowledge the legitimacy of property rights in principle, about the proper mode of resource acquisition and the proper manner of resource use, a valid transfer of rights must be conditioned on some act of the rights holder. The … way rights are transferred is by consent. … [L]egal enforcement is morally justified because the promisor voluntarily performed acts that conveyed her intention to create a legally enforceable obligation by transferring alienable rights. … [C]ontractual obligation, as distinct from other types of legal obligation, is based on that consent. … Requiring the consent of the rights holder as a condition of a valid transfer of rights is absolutely vital. … [W]hether one has consented to a transfer of rights … generally depends not on one’s subjective opinion about the meaning of one’s freely chosen words or conduct, but on the ordinary meaning that is attached to them. … [O]bjectively manifested conduct, which usually reflects subjective

intent, provides a far sounder basis for contractual obligation than do subjectively held intentions. Evidence of subjective intent that is extrinsic to the transaction and was unavailable to the other party is relevant, if at all, only insofar as it helps a court to ascertain the ‘objective’ meaning of certain terms. [page 41] What exact meaning must a court conclude was conveyed by a promisor to a promisee to find that a contractual commitment was incurred? If consent is properly thought of as ‘objective’ or ‘manifested’ assent, what is it that must be assented to for a contractual obligation to arise? It is not enough that one manifests a commitment or promises to perform or refrain from doing some act. Such a manifestation would be nothing more than a promise. Contract theory searches for the ‘extra’ factor that, if present, justifies the legal enforcement of a commitment or promise. … Consent to a transfer of rights is this factor. The consent that is required is a manifestation of an intention to alienate rights. In a system of entitlements where manifested rights transfers are what justify the legal enforcement of agreements, any such manifestation necessarily implies that one intends to be ‘legally bound,’ to adhere to one’s commitment. Therefore, the phrase ‘a manifestation of an intention to be legally bound’ neatly captures what a court should seek to find before holding that a contractual obligation has been created. Charles Fried maintains that a promisor incurs a moral obligation because she intentionally invokes a social convention whose purpose is to cause others to expect the promised performance. By contrast, a consent theory specifies that a promisor incurs a contractual obligation the legal enforcement of which is morally justifiable by manifesting assent to legal enforcement and thereby invoking the institution of contract. In the circumstances described by Fried, a promisor may have a moral obligation to do what she promised. Without more she would not have a legal obligation and a promisee would not have a legal right to performance. She incurs a contractual obligation to perform only when she manifests to a

promisee her intention to be legally bound. The basis of contractual obligation is not promising per se. The basis of contract is consent. … This approach accurately captures what is at stake when individuals seek to exchange or bestow entitlements that they have acquired or will acquire. … A consent theory facilitates efficient resource distribution by legally protecting consensual exchanges. Such consensual exchanges produce vital and otherwise unavailable information about value and thereby enable resources to gravitate to their highest value user. However, a consent theory refuses to approve nonconsensual transfers regardless of the alleged ‘efficiency’ of such transfers. A consent theory also avoids the extreme indeterminacy of a substantive fairness approach, while protecting that concept of fairness that is not a phantom — procedural fairness — by its reliance on generally formulated principles of contract formation and avoidance. … A consent theory of contract is an entitlements theory and therefore it bases legal obligation upon the rights of the parties. In contrast to one-sided party-based theories, a consent theory stresses the interrelational function of contract law. The criterion of enforceability — a manifested intention to be legally bound — respects the interests of both parties. A corollary of the manifestation requirement is that the meaning of a promisor’s conduct is interpreted from the perspective of (reasonable) promisees. Requiring that it is an intention to be legally bound that must be manifested protects the autonomy of promisors. [page 42] Further, a consent theory acknowledges that substantive concerns arising at the level of entitlements — for example, a distinction between alienable and inalienable rights — can affect the enforceability of certain commitments. Yet a consent approach eschews the sorts of substantive inquiries into and interference with ordinary contractual arrangements that substance-based theories demand. Finally, a consent theory supports the traditional recognition that certain processes — such as bargaining or using a seal —

give rise to a heavy presumption of enforceability. Unlike a process-based theory, a consent theory clearly specifies its dependence on underlying notions of entitlements that enable a legal system to choose which processes to recognize and to know when procedural requirements should be overridden.

Comment 3.4.1 See Radan, Gooley, and Vickovich at 3.21–3.24.

A FEMINIST CRITIQUE OF CONTRACT LAW 3.5E

Mulcahy, ‘Feminist Perspectives on Contract Law’

Source: L Mulcahy, ‘The Limitations of Love and Altruism — Feminist Perspectives on Contract Law’, in L Mulcahy and S Wheeler (eds), Feminist Perspectives on Contract Law, Glasshouse Press, London, 2005, pp 1–5. Extract: The extracts from Mulcahy’s chapter outline a critique, rather than a theoretical explanation, of contract law from a feminist perspective.

Feminist perspectives on contract law The law of contract is an area which is ripe for feminist analysis. Of the ‘core’ common law subjects, it is the one most obviously imbued with values associated with the marginalisation of women and the feminine. The emphasis placed on self-regarding, autonomous and competitive contractors by classical and neo-classical scholars has led to calls that the law of contract is phallocentric and centrally located in a suppression of the feminist voice and feminist values. Indeed, the identification of a correlation between the characteristics of masculinity and the ethos and philosophy of classical legal doctrine has been central to feminist

engagements with the law. Nothing better embodies masculine abstracted relations with each other than the model of the discrete contractual transaction with which the majority of scholarship in the field remains concerned. … [A] feminist analysis of contract law allows us to identify what dominant discourse has left unsaid about the nature of contractual relationships, and to question the credibility of dominant paradigms. … [page 43] Feminists have engaged with contract scholarship at several levels. At a general level, feminist work on law has encouraged sensitivity towards the many ways in which legal language and concepts are gendered. It has been argued, for instance, that masculine ways of thinking about relationships determine judicial approaches to problem solving. In particular, it has been claimed that masculine subjects prefer to work with predetermined and logical rules which, although inflexible, produce certainty. This tendency is reflected in classical and formalistic approaches to contracts, which concentrate on certainty, specific events and particular moments in time. Moreover, the emphasis placed by the judiciary on abstract principles and linear reasoning reflects the tendency of the common law to seek universal and guiding principles to frame all decisions. Such generalisations assume universal truths and a neutral or objective way of seeing things, which tend to suppress alternative visions of relationships and the needs of contracting parties. The emphasis of the law of contract on the objectified subject, or reasonable man, is particularly worthy of note in this context. Feminist critiques of law have argued that such rational and objective ordering of apparently gender-neutral persons serves subconsciously to address the essential male only. For many feminists, the root problem with law lies in its pretended impartiality, objectivity and rationality. This has meant that if women are to be reasonable within the legal meaning of the term then they must adopt the male standard of reasonableness. At a more specific level, a considerable amount of work has focused on contract as an alternative to marriage and the use of contract in intimate relationships more generally. It has been argued, for instance, that contract has the potential to foster a non-exploitative conception of ‘private’

relationships, although feminists have also argued that using contracts in this sphere could merely entrench existing bargaining inequalities. Recently, there has been some limited discussion of the value of relational contract theory to debate amongst feminists and increasing sympathy towards the view that contractual relationships need to be reconceptualised. This does not so much reflect a movement away from recognition of the oppressive effects of contracts so much as a rediscovery of their potential to privilege notions of connection rather than competition. …

An ethic of care in contracts? The gendered way in which contracts are understood has traditionally expressed itself in two main ways in the law of obligations. First, contractual relationships have been understood as being motivated and fuelled by separation, possessive individualism, certainty, security of transaction and standardisation. The classical and neo-classical models of contract, which continue to dominate the formulation of modern law, are associated with these masculine ideals of the discrete arms-length transaction between strangers. Indeed, it is arguable that there is no branch of the law in which the hostile egoism of possessive individualism is more clearly reflected than in the classical model, which takes people away from their pre-existing web of communities and networks. According to this vision, doctrinal analysis of contractual exchange is viewed as a mere expression of economic relationships: a callous cash nexus divorced from intimacy, in which exchanges are the only way in which individuals come to recognise the needs of others. [page 44] Numerous examples of this understanding of relationships can be drawn from the field of contract. One of the most obvious is the decision in Walford v Miles,4 in which Lord Ackner famously argued that the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in pre-contractual negotiations. In the alternative, he encouraged each party to pursue their own interests so long as they avoided making misrepresentations. The point

is also well illustrated by the way in which doctrines such as intention to create legal relations,5 and debate around the enforceability of cohabitation contracts exclude certain agreements from the contractual sphere because of their supposed reliance on alternative values. … [C]onsideration of the status of prenuptial agreements has been largely relegated to the sphere of family law, despite the fact that the majority of such contracts involve those concerned to protect proprietorial interests in acquired capital, as well as non-commercial expectations. The issues raised in debate about such agreements suggest that contract lawyers continue to struggle to know how to regulate complex relationships based on a mixture of trust, intimacy and selfishness. Drawing on some of these themes, Auchmuty argues, somewhat ironically, that the law’s fear of managing intimacy and abuse of bargaining power in undue influence cases stems from the fact that a defining feature of heterosexuality is a gendered power dynamic which is in turn reinforced by the legal system.6 One of the most important debates to emerge from modern feminism focuses on alternative understandings of what motivates people to form relationships and fulfil their promises to each other. Central to this debate is the idea that feminine subjects have a fundamentally different way of conceiving of, and understanding, relationships than the masculine architects of the classical and neo-classical canon. The argument that a discrete set of ideologies and values exist, which can be labelled feminine, has been the subject of much discussion and has resonance with contemporary discussions about the state of the law of contract. The distinction that … [has been] made between an ethic of justice and an ethic of care accentuates the differences between moral philosophy concerned with the rights of the autonomous, separate, objective self with an orientation towards procedural justice and the responsibilities of the connected, interdependent self with an orientation towards substantive outcomes. Men and women have been shown to adopt both orientations in response to particular needs but it is the former — an ethic of justice — that has been associated with masculinity and the latter ‘ethics of care’ that has been shown to most dominate the moral reasoning of women. … [page 45]

The ethic of care represents a distinctive approach to the understanding of relationships and has its own moral vocabulary, moral epistemology and explanatory force. It offers a direct contrast to the classical model in that it stresses the importance of intimacy, community and relational actors embedded in particular contexts. Feminist scholars have argued that the worlds of feminine subjects are worlds in which connection and network rather than bargain give rise to a recognition of responsibility for one another. Applying this reasoning to contracts, the late Mary Jo Frug characterised as feminine a position that was grounded in a pluralistic, context-sensitive model of contract relationships, which offered a multiplicity of objectives and perspectives.7 Her work gives us a taste of how feminine theories of contract might impact on contractual doctrines, such as frustration, and provide support for the development of a more sophisticated understanding of such concepts as good faith or unconscionability.

[page 46]

Comment 3.5.1 See Radan, Gooley, and Vickovich at 3.45–3.48.

1.

C Fried, Contract as Promise, A Theory of Contractual Obligation, Harvard University Press, Cambridge MA, 1981.

2. 3.

D Lewis, Convention: A Philosophical Study, Harvard University Press, Cambridge MA, 1969. D Hume, A Treatise of Human Nature, Selby-Bigge, Oxford, 1888, pp 516–25.

4. 5.

[1992] 2 AC 128. The overt aim of the doctrine was to ensure that only those who intended to enter into a commercial agreement would be bound by it; but indirectly the doctrine served the purposes of rendering unenforceable agreements made in the ‘domestic’ sphere between married couples or close relatives. As it is women, rather than men, who have tended to dominate the domestic sphere, such prohibitions have served to leave unheard women’s stories of unfulfilled obligations.

6.

R Auchmuty, ‘The Rhetoric of Equality and the Problem of Heterosexuality’ in L Mulcahy and S Wheeler (eds), Feminist Perspectives on Contract Law, Glasshouse Press, London, 2005, pp 51–74. Mary Jo Frug, Postmodern Legal Feminism, Routledge, London, 1992.

7.

[page 47]

Part II: Formation of a Contract

[page 49]

4 THE FACT OF AGREEMENT

INTRODUCTION 4.1 This chapter is concerned with one of the principal formative elements of contract, namely, agreement. Generally, where disputes as to the existence of an agreement arise, the law applies ‘offer and acceptance analysis’, by which courts are able to analyse the words and conduct of parties in order to determine whether a contract has been formed. What is required is the location of an offer by one party (the offeror) and, if it exists, the presence of an acceptance of that offer by the other party (the offeree). This, in principle, provides evidence that the parties have reached agreement. An offer is a statement upon which the maker is objectively seen as prepared and willing to be bound. In deciding whether an offer exists, courts distinguish between offers and invitations to treat, which are simply invitations for an offer. Although advertisements and other promotional materials are generally seen as invitations to treat, their wording may amount to an offer. The decision in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (see 4.2C) shows that a unilateral promise to the world at large to pay an amount of money on the performance of an act specified in the offer will amount to a valid offer capable of acceptance. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 (see 4.3C) illustrates that goods on display in a store are generally understood to be invitations to treat, and that interested customers make the offers required to buy them. Generally, auctions and calls for tender are examples of invitations to treat. However, they may amount to offers if the words used indicate a

willingness to be bound. This is discussed respectively in Barry v Davies [2001] 1 All ER 944 (see 4.4C) and Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25 (see 4.5C). An acceptance is a statement indicating that the maker is willing to enter into the agreement on the offeror’s terms. Apart from being accepted, offers may lapse or be extinguished by a rejection or counter-offer. The decision in Stevenson, Jaques & Co v McLean (1880) 5 QBD 346 (see 4.6C) deals with the issue of whether a particular response to an offer is a counter-offer or merely a request for further information, thereby leaving the offer open for acceptance by the offeree. An offer may also be revoked, so long as it has not been accepted. However, to be valid the revocation must be communicated. The requirements of communication in this context are dealt with in Dickinson v Dodds (1876) 2 Ch D 463 (see 4.7C). Whether an offer may be revoked once the offeree has commenced performance of its terms will depend on whether the performance has provided a benefit to the offeree: Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 (see 4.8C). [page 50] For an acceptance to be valid, certain requirements need to be met. One is that a valid acceptance must be in reliance on, and in response to, the offer: R v Clarke (1927) 40 CLR 227 (see 4.9C). Another is that acceptance must be communicated to the offeror, and that acceptance generally takes place when communication is received. However, where it is reasonable in the circumstances that acceptance may be effected by post, the decision in Household Fire and Carriage Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216 (see 4.10C) makes plain that acceptance takes place when it is sent. This ‘postal acceptance’ rule places the commercial risk on the offeror, who may dictate the terms of acceptance in his or her offer. The different kinds of communication that fall within the ambit of the postal acceptance rule are discussed in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 (see 4.11C). However, it should also be noted that the operation of the postal acceptance rule may be excluded by the parties, as illustrated in Bressan v Squires [1974] 2 NSWLR 460 (see 4.12C).

Finally, Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965 (see 4.13C) shows that a strict application of offer and acceptance analysis to locate agreement between apparently contracting parties may not be appropriate, especially in cases involving a ‘battle of forms’.

OFFERS OR INVITATIONS TO TREAT — PROMOTIONAL MATERIALS 4.2C

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Court: Court of Appeal in England Facts: The Carbolic Smoke Ball Co produced the Carbolic Smoke Ball, which was a medical preparation. It placed an advertisement in newspapers offering a reward of £100 to any person who, having used the medication as prescribed for two weeks, nevertheless contracted influenza. The advertisement further stated that the company had deposited £1000 in a special bank account as evidence of its sincerity in this matter. Mrs Carlill purchased the medication and used it as prescribed for eight weeks before contracting influenza. On the basis that the offer of a reward and her conduct in response to the offer constituted a contract, Carlill sued to recover the £100 reward. Carbolic argued that there was no contract between itself and Carlill. Issues: This case involved a number of issues in relation to whether the reward offer was an offer in law and whether it had been accepted by Carlill’s conduct. It also raised the question of whether Carlill had provided consideration (see Chapter 6) for the promise of the reward. Decision: The Court of Appeal (Lindley, Bowen, and A L Smith LJJ) unanimously ruled in favour of Carlill and ordered that Carbolic pay the reward. Extract: The extracts below from the judgment of Bowen LJ discuss

and apply to the facts of this case the relevant principles relating to offer and acceptance and consideration.

[page 51]

Bowen LJ Was it intended that the £100 should, if the conditions were fulfilled, be paid? The advertisement says that £1,000 is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that £100 would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon. But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise £100 to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them. It was also said that the contract is made with all the world — that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to anyone who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is

an offer to be bound, then it is a contract the moment the person fulfils the condition. … Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law — I say nothing about the laws of other countries — to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification. … Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a [page 52] binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody

who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer. A further argument for the defendants was that this was a nudum pactum — that there was no consideration for the promise — that taking the influenza was only a condition, and that the using the smoke ball was only a condition, and that there was no consideration at all; in fact, that there was no request, express or implied, to use the smoke ball. … The short answer, to abstain from academical discussion, is, it seems to me, that there is here a request to use involved in the offer. Then as to the alleged want of consideration. The definition of ‘consideration’ given in Selwyn’s Nisi Prius1 … is this: ‘Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant’. Can it be said here that if the person who reads this advertisement applies thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all — that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration enough that [Mrs Carlill] took the trouble of using the smoke ball. But I think also that [Carbolic] received a benefit from this user, for the use of the smoke ball was contemplated by

[Carbolic] as being indirectly a benefit to them, because the use of the smoke balls would promote their sale.

[page 53]

Comments 4.2.1 4.2.2

4.2.3

See Radan, Gooley, and Vickovich at 4.12, 4.22, 4.47, 4.66, and 4.99–4.100. On the consideration aspect of this case and how this case contrasts with the decision in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424, see Radan, Gooley, and Vickovich at 6.21–6.23. Australian Woollen Mills is extracted at 6.2C. For a fascinating account of this case, including its background, see A W Brian Simpson, Leading Cases in the Common Law, Clarendon Press, United Kingdom, 1995, pp 257–91.

OFFERS OR INVITATIONS TO TREAT — SELF-SERVICE STORES 4.3C

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401

Court: Court of Appeal in England Facts: Section 18 of the Pharmacy and Poisons Act 1933 (UK) stipulated that certain drugs could only be sold to members of the public if the sale was ‘effected by, or under the supervision of, a registered pharmacist’. Boots Cash Chemists operated a self-service pharmacy. When one of its customers selected to purchase drugs covered by the legislation, they proceeded to a checkout desk where

a registered pharmacist handled the transaction. The registered pharmacist was also authorised by the pharmacy to prevent any person from removing any drugs from the premises. The Pharmaceutical Society brought an action against Boots Cash Chemists, claiming that this method of selling the drugs breached s 18. Issue: In determining whether the legislation was breached, the critical issue before the Court of Appeal was whether the display of drugs was an offer or an invitation to treat. Decision: The Court of Appeal (Somervell, Birkett, and Romer LJJ) unanimously ruled that the legislation had not been breached because the display was not an offer. The court held that the offer was made by the customer, which, in the case of drugs covered by the legislation, was accepted by a registered pharmacist. Thus, there was no violation of s 18 because the sale of drugs was effected under the control or supervision of a registered pharmacist. Extract: The extracts from the judgments of Somervell LJ and Birkett LJ discuss the reasons why a display of goods is generally not viewed as an offer.

Somervell LJ The point taken by the [Society] is this: it is said that the purchase is complete if and when a customer going round the shelves takes an article and puts it in the receptacle which he or she is carrying, and that therefore, if that is right, when the customer comes to the pay [page 54] desk, having completed the tour of the premises, the registered pharmacist, if so minded, has no power to say: ‘This drug ought not to be sold to this customer.’ Whether and in what circumstances he would have that power we need not inquire, but one can, of course, see that there is a difference if

supervision can only be exercised at a time when the contract is completed. … Whether the view contended for by the [Society] is a right view depends on what are the legal implications of this layout — the invitation to the customer. Is a contract to be regarded as being completed when the article is put into the receptacle, or is this to be regarded as a more organized way of doing what is done already in many types of shops — and a bookseller is perhaps the best example — namely, enabling customers to have free access to what is in the shop, to look at the different articles, and then, ultimately, having got the ones which they wish to buy, to come up to the assistant saying ‘I want this’? The assistant in 999 times out of 1,000 says ‘That is all right,’ and the money passes and the transaction is completed. I agree … that in the case of an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed. I can see no reason at all, that being clearly the normal position, for drawing any different implication as a result of this layout. … [O]ne of the most formidable difficulties in the way of the [Society’s] contention [is] that, if the [Society is] right, once an article has been placed in the receptacle the customer himself is bound and would have no right, without paying for the first article, to substitute an article which he saw later of a similar kind and which he perhaps preferred. I can see no reason for implying from this self-service arrangement any implication other than that … it is a convenient method of enabling customers to see what there is and choose, and possibly put back and substitute, articles which they wish to have, and then to go up to the cashier and offer to buy what they have so far chosen. On that conclusion the case fails, because it is admitted that there was supervision in the sense required by the Act and at the appropriate moment of time.

Birkett LJ This action has been brought by the Pharmaceutical Society in pursuance of that duty which is laid upon them by statute, and the short point of the case is, at what point of time did the sale in this particular

shop at Edgware take place? … The two women customers in this case each took a particular package containing poison from the particular shelf, put it into her basket, came to the exit and there paid. It is said, on the one hand, that when the customer takes the package from the poison section and puts it into her basket the sale there and then takes place. On the other hand, it is said the sale does not take place until that customer, who has placed that package in the basket, comes to the exit. The Lord Chief Justice [who heard this case at first instance] dealt with the matter in this way, and I would like to adopt his words: It seems to me, therefore, that the transaction is in no way different from the normal transaction in a shop in which there is no selfservice scheme. I am quite satisfied it would [page 55] be wrong to say that the shopkeeper is making an offer to sell every article in the shop to any person who might come in and that that person can insist on buying any article by saying ‘I accept your offer’.2 Then he went on to deal with the illustration of the bookshop, and continued: Therefore, in my opinion, the mere fact that a customer picks up a bottle of medicine from the shelves in this case does not amount to an acceptance of an offer to sell. It is an offer by the customer to buy and there is no sale effected until the buyer’s offer to buy is accepted by the acceptance of the price. The offer, the acceptance of the price, and therefore the sale take place under the supervision of the pharmacist. That is sufficient to satisfy the requirements of the section, for by using the words ‘the sale is effected by, or under the supervision of, a registered pharmacist’ the Act envisages that the sale may be effected by someone not a pharmacist. I think, too, that the sale is effected under his supervision if he is in a position to say ‘You must not have that: that contains poison’, so that in any case,

even if I were wrong in the view that I have taken on the question as to when the sale was completed, and it was completed when the customer took the article from the shelf, it would still be effected under the supervision of the pharmacist within the meaning of section 18.3 I agree with that.

[page 56]

Comment 4.3.1 See Radan, Gooley, and Vickovich at 4.23–4.27.

OFFERS OR INVITATIONS TO TREAT — AUCTIONS 4.4C

Barry v Davies [2001] 1 All ER 944

Court: Court of Appeal in England Facts: Davies, trading as an auctioneer, conducted an auction of a couple of machines, each worth over £14,000. The auction was conducted without a reserve price on the machines. The auctioneer, after unsuccessfully seeking bids ranging from £3000 to £5000, then asked what bids there were for the machines. The only bids were those made by Barry, who offered £200 for each machine. The auctioneer refused to accept the bids. The machines were subsequently sold for £700 each. Barry successfully sued the auctioneer for damages for breach of contract on the basis that, as the highest bidder, he was entitled to purchase the two machines for £400. The auctioneer appealed the trial judge’s decision. Issue: The issue before the Court of Appeal was whether an

auctioneer who, at a without-reserve-price auction refuses to accept the highest bid, is in breach of contract with that bidder. Decision: The Court of Appeal (Pill LJ and Sir Murray Stuart-Smith) unanimously held that the auctioneer was liable to Barry for damages for breach of contract. Extract: The extract from the judgment of Sir Murray Stuart-Smith discusses the basis for the auctioneer’s liability in contract to the highest bidder in a without-reserve-price auction, if the auctioneer does not accept the highest bid.

Sir Murray Stuart-Smith The [trial] judge held that it would be the general and reasonable expectation of persons attending at an auction sale without reserve that the highest bidder would and should be entitled to the lot for which he bids. Such an outcome was in his view fair and logical. As a matter of law he held that there was a collateral contract between the auctioneer and the highest bidder constituted by an offer by the auctioneer to sell to the highest bidder which was accepted when the bid was made. In so doing he followed the views of the majority of the Court of Exchequer Chamber in Warlow v Harrison.4 … Mr Moran on behalf of [Davies] criticises this conclusion on a number of grounds. First he submits that the holding of an auction without reserve does not amount to a promise on the part of the auctioneer to sell the lots to the highest bidder. There are no express words [page 57] to the effect, merely a statement of fact that the vendor has not placed a reserve on the lot. Such an intention, he submits, is inconsistent with two principles of law, namely that the auctioneer’s request for bids is not an offer which can be accepted by the highest bidder5 and that there is no completed contract of sale until the auctioneer’s hammer falls and the bidder may withdraw his bid up until that time. … There should be no need

to imply such a promise into a statement that the sale is without reserve, because there may be other valid reasons why the auctioneer should be entitled to withdraw the lot, for example if he suspected an illegal ring or that the vendor had no title to sell. Secondly Mr Moran submits that there is no consideration for the auctioneer’s promise. He submits that the bid itself cannot amount to consideration because the bidder has not promised to do anything, he can withdraw the bid until it is accepted and the sale completed by the fall of the hammer. At most the bid represents a discretionary promise, which amounts to illusory consideration, for example promising to do something ‘if I feel like if’. The bid only had real benefit to the auctioneer at the moment the sale is completed by the fall of the hammer. Furthermore the suggestion that consideration is provided because the auctioneer has the opportunity to accept the bid or to obtain a higher bid as the bidding is driven up depends upon the bid not being withdrawn. Finally Mr Moran submits that where an agent is acting for a disclosed principal he is not liable on the contract.6 If therefore there is any collateral contract it is with the principal and not the agent. These submissions were forcefully and attractively argued by Mr Moran. The authorities, such as they were, do not speak with one voice. … [In] sales by auction without reserve, the auctioneer is the agent of the vendor and unless [the auctioneer has notified bidders that the vendor reserves the right to make a bid] it is not lawful for him to make a bid [on behalf of the vendor]. Yet withdrawing the lot from the sale because it has not reached the level which the auctioneer considers appropriate is tantamount to bidding on behalf of the seller. The highest bid cannot be rejected simply because it is not high enough. The judge based his decision on the reasoning of the majority of the Court of Exchequer Chamber in Warlow v Harrison. The sale was of ‘the three following horses, the property of a gentleman, without reserve’. The plaintiff bid 60 guineas for one of the horses; another person, who was in fact the owner, immediately bid 61 guineas. The plaintiff, having been informed that the bid was from the owner declined to bid higher, and claimed he was entitled to the horse. He sued the auctioneer; he based his claim on a plea that the auctioneer was his agent to complete the contract

on his behalf. On that plea the plaintiff succeeded at first instance; but the verdict was set aside in the Court of Queen’s Bench. The plaintiff appealed. Although the Court of Exchequer Chamber upheld the decision on the case as pleaded, all five members of the court held that if the pleadings were appropriately amended, [page 58] the plaintiff would be entitled to succeed on a retrial. Martin B gave the judgment of the majority. … He said: Upon the facts of the case, it seems to us that the plaintiff is entitled to recover. In a sale by auction there are three parties, viz. the owner of the property to be sold, the auctioneer, and the portion of the public who attend to bid, which of course includes the highest bidder. In this, as in most cases of sales by auction, the owner’s name was not disclosed: he was a concealed principal. The name of the auctioneers, of whom the defendant was one, alone was published; and the sale was announced by them to be ‘without reserve’. This, according to all the cases both at law and equity, means that neither the vendor nor any person in his behalf shall bid at the auction, and that the property shall be sold to the highest bidder, whether the sum bid be equivalent to the real value or not.7 We cannot distinguish the case of an auctioneer putting up property for sale upon such a condition from the case of the loser of property offering a reward, or that of a railway company publishing a time table stating the times when, and the places to which, the trains run. It has been decided that the person giving the information advertised for, or a passenger taking a ticket, may sue as upon a contract with him.8 Upon the same principle, it seems to us that the highest bona fide bidder at an auction may sue the auctioneer as upon a contract that the sale shall be without reserve. We think the auctioneer who puts the property up for sale upon such a condition pledges himself that the sale shall be without reserve; or, in other words, contracts that it shall be so; and that this contract is made

with the highest bona fide bidder; and, in case of a breach of it, that he has a right of action against the auctioneer.9 And he said: We entertain no doubt that the owner may, at any time before the contract is legally complete, interfere and revoke the auctioneer’s authority: but he does so at his peril; and, if the auctioneer has contracted any liability in consequence of his employment and the subsequent revocation or conduct of the owner, he is entitled to be indemnified.10 … In Harris v Nickerson the defendant, an auctioneer, advertised a sale by auction of certain lots including office furniture on a certain day and the two following days. But the sale of furniture on the third day was withdrawn. The plaintiff attended the sale and claimed against the defendant for breach of contract in not holding the sale, seeking to recover his expenses in attending. The claim was rejected by the Court of Queen’s Bench. In the course of his judgment Blackburn J said: [I]n the case of Warlow v Harrison, the opinion of the majority of the judges in the Exchequer Chamber appears to have been that an action would lie for not knocking down the lot to the highest bona fide bidder when the sale was advertised as without reserve; in such a case it may be that there is a contract to sell to the highest bidder. …11 [page 59] As to consideration, in my judgment there is consideration both in the form of detriment to the bidder, since his bid can be accepted unless and until it is withdrawn, and benefit to the auctioneer as the bidding is driven up. Moreover attendance at the sale is likely to be increased if it is known that there is no reserve. As to the agency point, there is no doubt that when the sale is concluded, the contract is between the purchaser and vendor and not the auctioneer. Even if the identity of the vendor is not disclosed, it is clear that the

auctioneer is selling as agent. It is true that there was no such contract between vendor and purchaser. But that does not prevent a collateral agreement existing between the auctioneer and bidder. A common example of this is an action for breach of warranty of authority, which arises on a collateral contract. For these reasons I would uphold the [trial] judge’s decision. …

Comments 4.4.1 See Radan, Gooley, and Vickovich at 4.30–4.33. 4.4.2 For a discussion of this case, see J W Carter, ‘Auction “Without Reserve” – Barry v Davies’ (2001) 17 Journal of Contract Law 69.

OFFERS OR INVITATIONS TO TREAT — TENDERS 4.5C

Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25

Court: Court of Appeal in England Facts: The Council, which owned an airport, called for tenders to operate pleasure flights from the airport. Blackpool & Fylde Aero Club was the existing operator whose contract was coming to an end. It was also one of the closed group of seven persons invited to tender for a new contract. The invitation to tender was detailed and specific in the procedure for, and form of, the submission of tenders. The reason for this was that the Council wanted to ensure that the committee considering the tenders was not in a position to know which tender had been submitted by which tenderer. One of the clauses in the call for tenders stated that ‘[n]o tender which is received after the last date and time specified shall be admitted for consideration’. The Club submitted its tender on time and in accordance with the required procedure and form. However, due to

an administrative error by the Council, the tender was not considered. This meant that the Club lost any chance of being the successful tenderer. The Club sued the Council for damages for breach of contract. Issue: The issue before the Court of Appeal was whether a call for tenders could, in any circumstances, contain an offer. [page 60] Decision: The Court of Appeal (Stocker, Bingham, and Farquharson LJJ) unanimously held that the clause in the call for tenders constituted an offer to consider all duly submitted tenders, and that the Club had accepted the offer by submitting a tender that met all of the Council’s requirements as to procedure and form. Thus, the Council was liable to the Club for damages for breach of contract. Extract: The extracts from the judgments of Bingham LJ and Stocker LJ discuss the circumstances in which a call for tenders may contain an offer.

Bingham LJ In defending the [trial] judge’s decision counsel for the club accepted that an invitation to tender was normally no more than an offer to receive tenders. But it could, he submitted, in certain circumstances give rise to binding contractual obligations on the part of the invitor, either from the express words of the tender or from the circumstances surrounding the sending out of the invitation to tender or (as here) from both. The circumstances relied on here were that the council approached the club and the other invitees, all of them connected with the airport, that the club had held the concession for eight years, having successfully tendered on three previous occasions, that the council as a local authority was obliged to comply with its standing orders and owed a fiduciary duty to ratepayers to act with reasonable prudence in managing its financial affairs and that there was a clear intention on the part of both parties that all timely tenders

would be considered. If in these circumstances one asked of this invitation to tender the question posed by Bowen LJ in Carlill v Carbolic Smoke Ball,12 ‘How would an ordinary person reading this document construe it?’, the answer in the submission of counsel for the club was clear: the council might or might not accept any particular tender; it might accept no tender; it might decide not to award the concession at all; it would not consider any tender received after the advertised deadline; but if it did consider any tender received before the deadline and conforming with the advertised conditions it would consider all such tenders. … A tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. He can invite tenders from as many or as few parties as he chooses. He need not tell any of them who else, or how many others, he has invited. The invitee may often, although not here, be put to considerable labour and expense in preparing a tender, ordinarily without recompense if he is unsuccessful. The invitation to tender may itself, in a complex case, although again not here, involve time and expense to prepare, but the invitor does not commit himself to proceed with the project, whatever it is; he need not accept the highest tender; he need not accept any tender; he need not give reasons to justify his acceptance or rejection of any tender received. The risk to which the tenderer is exposed does not end with the risk that his tender may not be the highest (or, as the case may be, lowest). But where, as here, tenders are solicited from selected parties all of them known to the invitor, and where a local authority’s invitation prescribes a clear, orderly and familiar procedure (draft contract conditions available for inspection and plainly not open [page 61] to negotiation, a prescribed common form of tender, the supply of envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in question and an absolute deadline) the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other

conforming tenders or at least that his tender will be considered if others are. Had the club, before tendering, inquired of the council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been ‘of course’. The law would, I think, be defective if it did not give effect to that. It is of course true that the invitation to tender does not explicitly state that the council will consider timely and conforming tenders. That is why one is concerned with implication. But the council does not either say that it does not bind itself to do so, and in the context a reasonable invitee would understand the invitation to be saying, quite clearly, that if he submitted a timely and conforming tender it would be considered, at least if any other such tender were considered. I readily accept that contracts are not to be lightly implied. Having examined what the parties said and did, the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for. It must also, in most cases, be able to answer the question posed by Mustill LJ in Hispanica de Petroleos SA v Vencedora Oceanica Navegacion SA, The Kapetan Markos NL (No 2): ‘What was the mechanism for offer and acceptance?’13 In all the circumstances of this case (and I say nothing about any other) I have no doubt that the parties did intend to create contractual relations to the limited extent contended for. Since it has never been the law that a person is only entitled to enforce his contractual rights in a reasonable way,14 counsel for the club was in my view right to contend for no more than a contractual duty to consider. I think it plain that the council’s invitation to tender was, to this limited extent, an offer, and the club’s submission of a timely and conforming tender an acceptance.

Stocker LJ I agree. … The format of the invitation to tender document itself suggests, in my view, that a legal obligation to consider to tender submitted before any award of a concession was made to any other operator was to be implied in the case of any operator of aircraft to whom the invitation was directed who complied with its terms and conditions. The fact that the invitation to tender was limited to a very small class of operators is itself of significance. The circumstances surrounding the issue of the invitation to

tender and the formal requirements imposed by it support the conclusion. Of particular significance, in my view, was the requirement that tenders be submitted in the official envelope supplied and indorsed … by the council. The purpose of this requirement must surely have been to preserve the [page 62] anonymity of the tenderer and, in conjunction with the council’s standing orders, to prevent any premature leak of the nature and amount of such tender to other interested or potentially interested parties. Such a requirement, as a condition of the validity of the tender submitted, seems pointless unless all tenders submitted in time and in accordance with the requirements are to be considered before any award of the concession is made. There can be no doubt that this was the intention of both parties, as exemplified by the council’s actions when its error with regard to the time of receipt of the club’s tender was appreciated. Such a common intention can, of course, exist without giving rise to any contractual obligations, but the circumstances of this case indicate to me that this is one of the fairly rare exceptions to the general rule expounded in the leading cases of Spencer v Harding and Harris v Nickerson. I therefore agree that in all the circumstances of this case there was an intention to create binding legal obligations if and when a tender was submitted in accordance with the terms of the invitation to tender, and that a binding contractual obligation arose that the club’s tender would be before the officer or committee by whom the decision was to be taken for consideration before a decision was made or any tender accepted. This would not preclude or inhibit the council from deciding not to accept any tender or to award the concession, provided the decision was bona fide and honest, to any tenderer. The obligation was that the club’s tender would be before the deciding body for consideration before any award was made. Accordingly, in my view, the conclusion of the judge and his reasons were correct.

Comments 4.5.1 See Radan, Gooley, and Vickovich at 4.38–4.40.

4.5.2

For a discussion of this case, see A Phang, ‘Tenders and Uncertainty’ (1991) 4 Journal of Contract Law 46.

COUNTER-OFFER OR REQUEST FOR FURTHER INFORMATION AND ACCEPTANCE OF OFFER 4.6C

Stevenson, Jaques & Co v McLean (1880) 5 QBD 346

Court: Queen’s Bench Division Facts: McLean offered to sell a quantity of iron to Stevenson at a set price for cash on delivery. Stevenson responded by seeking credit terms. McLean treated this as a rejection of the offer and sold the iron to somebody else. However, Stevenson subsequently accepted the offer before it was formally withdrawn and claimed that there was a contract. Stevenson sued McLean for damages for non-delivery of the goods. Issues: The first question to be determined by the court was whether Stevenson’s response to McLean’s offer was a rejection of it. If it was not, then the second issue was whether Stevenson had accepted the offer before McLean withdrew it. [page 63] Decision: Lush J answered both questions in favour of Stevenson, with the result that, there being a contract between the parties, McLean was liable to pay damages to Stevenson for non-delivery of the iron. Extract: The extract from the decision of Lush J discusses and applies the principles relevant to the two questions raised by this case.

Lush J

Two objections were relied on by [McLean], it was contended that the telegram sent by [Stevenson] on the Monday morning was a rejection of [McLean’s] offer and a new proposal on [Stevenson’s] part, and that [McLean] had therefore a right to regard it as putting an end to the original negotiation. Looking at the form of the telegram, the time when it was sent, and the state of the iron market, I cannot think this is its fair meaning. The plaintiff Stevenson said he meant it only as an inquiry, expecting an answer for his guidance, and this, I think, is the sense in which the defendant ought to have regarded it. It is apparent throughout the correspondence, that [Stevenson] did not contemplate buying the iron on speculation, but that their acceptance of [McLean’s] offer depended on their finding someone to take the [iron] off their hands. All parties knew that the market was in an unsettled state, and that no one could predict at the early hour when the telegram was sent how the prices would range during the day. It was reasonable that, under these circumstances, they should desire to know before business began whether they were to be at liberty in case of need to make any and what concession as to the time or times of delivery, which would be the time or times of payment, or whether [McLean] was determined to adhere to the terms of his letter; and it was highly unreasonable that [Stevenson] should have intended to close the negotiation while it was uncertain whether they could find a buyer or not, having the whole of the business hours of the day to look for one. Then, again, the form of the telegram is one of inquiry. It is not ‘I offer forty for delivery over two months,’ which would have likened the case to Hyde v Wrench,15 where one party offered his estate for £1,000, and the other answered by offering £950. Lord Langdale, in that case, held that after the £950 had been refused, the party offering it could not, by then agreeing to the original proposal, claim the estate, for the negotiation was at an end by the refusal of his counter proposal. Here there is no counter proposal. The words are, ‘Please wire whether you would accept forty for delivery over two months, or, if not, the longest limit you would give’. There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer. This ground of objection therefore fails. The remaining objection was one founded on a well-known passage in

Pothier, which has been supposed to have been sanctioned by the Court of Queen’s Bench in Cooke v Oxley,16 that in order to constitute a contract there must be the assent or concurrence of the [page 64] two minds at the moment when the offer is accepted; and that if, when an offer is made, and time is given to the other party to determine whether he will accept or reject it, the proposer changes his mind before the time arrives, although no notice of the withdrawal has been given to the other party, the option of accepting it is gone. The case of Cooke v Oxley does not appear to me to warrant the inference which has been drawn from it, or the supposition that the judges ever intended to lay down such a doctrine. … All that the judgment [in Cooke v Oxley] affirms is, that a party who gives time to another to accept or reject a proposal is not bound to wait till the time expires. And this is perfectly consistent with legal principles and with subsequent authorities, which have been supposed to conflict with Cooke v Oxley. It is clear that a unilateral promise is not binding, and that if the person who makes an offer revokes it before it has been accepted, which he is at liberty to do, the negotiation is at an end.17 But in the absence of an intermediate revocation, a party who makes a proposal by letter to another is considered as repeating the offer every instant of time till the letter has reached its destination and the correspondent has had a reasonable time to answer it.18 ‘Common sense tells us’, said Lord Cottenham, in Dunlop v Higgins, ‘that transactions cannot go on without such a rule’.19 It cannot make any difference whether the negotiation is carried on by post, or by telegraph, or by oral message. If the offer is not retracted, it is in force as a continuing offer till the time for accepting or rejecting it has arrived. But if it is retracted, there is an end of the proposal. Cooke v Oxley, if decided the other way, would have negatived the right of the proposing party to revoke his offer. Taking this to be the effect of the decision in Cooke v Oxley, the doctrine of Pothier before adverted to, which is undoubtedly contrary to the spirit of English law, has never been affirmed in our Courts. Singularly enough, the very reasonable proposition that a revocation is nothing till it has been

communicated to the other party, has not, until recently, been laid down, no case having apparently arisen to call for a decision upon the point. In America it was decided some years ago that ‘an offer cannot be withdrawn unless the withdrawal reaches the party to whom it is addressed before his letter of reply announcing the acceptance has been transmitted’;20 and in Bryne & Co v Leon Van Tienhoven & Co21 my Brother Lindley, in an elaborate judgment, adopted this view, and held that an uncommunicated revocation is, for all practical purposes and in point of law, no revocation at all. It follows, that as no notice of withdrawal of his offer to sell at 40s, nett cash, was given by [McLean], … [Stevenson] … had a right to regard it as a continuing offer, and their acceptance of it made the contract, which was initiated by the proposal, complete and binding on both parties. My judgment must, therefore, be for [Stevenson].

[page 65]

Comments 4.6.1 See Radan, Gooley, and Vickovich at 4.53 and 4.116. 4.6.2 In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 179, Heydon JA, in discussing cases where offer and acceptance analysis is not appropriate to determine whether parties have entered into an agreement, said that: … the general principle that a rejection of an offer brings it to an end cannot be universal. A rejected offer could remain operative if it were repeated, or otherwise revived, or if in the circumstances it should for some other reason be treated, despite its rejection, as remaining on foot, available for acceptance, or for adoption as the basis of mutual assent manifested by conduct.

WITHDRAWAL OF OFFERS 4.7C

Dickinson v Dodds (1876) 2 Ch D 463

Court: Court of Appeal in England Facts: Dodds made an offer to sell land to Dickinson, but before Dickinson accepted the offer, Dodds sold the property to Allan. Dodds did not advise Dickinson of the sale, but Dickinson was made aware of the sale to Allan by Berry, who was Dickinson’s agent. Dickinson subsequently purported to accept Dodds’s offer. As the property had already been sold to Allen, Dickinson sued Dodds for damages for breach of contract. Issue: The issue before the Court of Appeal was whether Dodds’s offer had been validly revoked before it was accepted by Dickinson. Decision: The Court of Appeal (James and Mellish LJJ, Baggallay JA) unanimously ruled in favour of Dodds. It held that the communication by Berry to Dickinson that the property had been sold to Allan terminated Dodds’s offer, with the consequence that there was no longer any offer for Dickinson to accept. Extract: The extracts from the judgments of James LJ and Mellish LJ discuss the requirement of communication for the revocation of an offer.

James LJ It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a retractation. It must, to constitute a contract, appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Of course it may well be that the one man is bound in some way or other to let the other man know that his mind with regard to the offer has been

changed; but in this case, beyond all question, [Dickinson] knew that Dodds was no longer minded to sell the property to him as plainly [page 66] and clearly as if Dodds had told him in so many words, ‘I withdraw the offer.’ This is evident from [Dickinson’s] own statements in the bill. …

Mellish LJ If an offer has been made for the sale of property, and before that offer is accepted, the person who has made the offer enters into a binding agreement to sell the property to somebody else, and the person to whom the offer was first made receives notice in some way that the property has been sold to another person, can he after that make a binding contract by the acceptance of the offer? I am of opinion that he cannot. The law may be right or wrong in saying that a person who has given to another a certain time within which to accept an offer is not bound by his promise to give that time; but, if he is not bound by that promise, and may still sell the property to someone else, and if it be the law that, in order to make a contract, the two minds must be in agreement at some one time, that is, at the time of the acceptance, how is it possible that when the person to whom the offer has been made knows that the person who has made the offer has sold the property to someone else, and that, in fact, he has not remained in the same mind to sell it to him, he can be at liberty to accept the offer and thereby make a binding contract? It seems to me that would be simply absurd. If a man makes an offer to sell a particular horse in his stable, and says, ‘I will give you until the day after to-morrow to accept the offer,’ and the next day goes and sells the horse to somebody else, and receives the purchase-money from him, can the person to whom the offer was originally made then come and say, ‘I accept,’ so as to make a binding contract, and so as to be entitled to recover damages for the non-delivery of the horse? If the rule of law is that a mere offer to sell property, which can be withdrawn at any time, and which is made dependent on the acceptance of the person to whom it is made, is a mere nudum pactum, how is it possible that the person to whom the offer has been made can by

acceptance make a binding contract after he knows that the person who has made the offer has sold the property to someone else? It is admitted law that, if a man who makes an offer dies, the offer cannot be accepted after he is dead, and parting with the property has very much the same effect as the death of the owner, for it makes the performance of the offer impossible. I am clearly of opinion that, just as when a man who has made an offer dies before it is accepted it is impossible that it can then be accepted, so when once the person to whom the offer was made knows that the property has been sold to someone else, it is too late for him to accept the offer, and on that ground I am clearly of opinion that there was no binding contract for the sale of this property by Dodds to Dickinson, and even if there had been, it seems to me that the sale of the property to Allan was first in point of time. However, it is not necessary to consider, if there had been two binding contracts, which of them would be entitled to priority in equity, because there is no binding contract between Dodds and Dickinson.

Comment 4.7.1 See Radan, Gooley, and Vickovich at 4.60–4.61.

[page 67]

WITHDRAWAL OF OFFER WHERE PERFORMANCE HAS COMMENCED 4.8C Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153

ALR 198 Court: Full Court of the Federal Court of Australia Facts: Franchisees of Mobil Oil alleged that it had made them an offer of various benefits if they reached certain levels of sales over a certain period of time. Before that time period had elapsed the

alleged offer was withdrawn. The franchisees brought claims against Mobil on a number of grounds, including damages for breach of contract. In relation to the contract claim, the franchisees claimed that Mobil had made an offer that could not be revoked once the terms of the offer had been partly performed. They claimed that Mobil’s revocation of the offer in such circumstances rendered it liable for damages for breach of contract. Issues: The issues before the Full Court were whether Mobil had made an offer and, if it had, whether its revocation of the offer rendered it liable for damages for breach of contract. Decision: The Full Court (Lockhart, Lindgren, and Tamberlin JJ) in a unanimous joint judgment ruled that Mobil made no such offer. The court nevertheless dealt with withdrawal of offers in such circumstances. Such a withdrawal would have been valid because the increased level of sales achieved by the franchisees in performing the terms of the offer was of benefit to them and, therefore, it would not have been unjust for Mobil to revoke the offer. Furthermore, the court said that if there was an implied condition in the offer not to revoke it, the offeror could still nevertheless revoke the offer. However, in such a case the offeree would have an action for damages for breach of the implied contract. Extract: The extract from the court’s joint judgment discusses the principles that apply to the revocation of an offer where the offeree has partly performed the terms of the offer at the time of the purported revocation.

The Full Court His Honour [the judge at first instance] referred to discussions of the question whether an offeror of a promise for an act can effectively revoke the offer where performance of the act of acceptance has been embarked upon but not completed. … He considered that the weight of authority was in favour of the proposition that, … a person who makes an offer susceptible of acceptance by

performance of an act, may not revoke that offer after the offeree has embarked upon performance of the act. … We would make several observations at the outset. It has been suggested to be unjust that an offeror should be at liberty to revoke the offer once performance of the act, which is at once the act of acceptance and the executed consideration, has commenced. This proposition is usually stated as if its truth were self evident and universal. We do not think that it is either. [page 68] (a) The respective positions of offeror and offeree vary greatly from the case of one unilateral contract to another. The following factors illustrate: (i) The offeror may or may not know that the offeree has commenced performance; (ii) The offeree may or may not have an understanding that the offeror is at liberty to revoke and that any incomplete performance of the act of acceptance by the offeree will be at his or her risk; (iii) The notion of ‘commencement of performance of the act of acceptance’ or ‘embarking upon the act of acceptance’ is problematical and can lead to a result which is unjust to the offeror. By reference to the facts of the present case, could it be suggested that attainment of ninety per cent in the first year or even perfect operation of a service station for a day, a week or a month, albeit by reference to the offer, represents a commencement of attainment of ninety per cent in all six years so as immediately to bind Mobil not to revoke? (iv) The act called for by the offer may be detrimental to the offeree, or of some benefit to the offeree as well as to the offeror, as in the present case; (v) Although the offeree is not obliged to perform, or to continue performing, the act of acceptance and is at liberty to cease

performing at any time, ex hypothesi, the offeror remains bound, perhaps over a lengthy period as in the present case, to keep its offer open for completion of the act of acceptance, without knowing whether the offeree will choose to complete or not to complete that act; (vi) The circumstances of the particular case may or may not, by reference to conventional criteria, suggest that the parties intended that the offeror should not be at liberty to revoke once the offeree had performed the act of acceptance to some extent. We do not accept that it is universally unjust that an offeror be at liberty to revoke once the offeree has ‘commenced’ or ‘embarked upon’ performance of an act which is both the sought act of acceptance of the offer and the sought executed consideration for the promise. (b) A juristic basis which has been suggested to support the general proposition is that of an implied ancillary unilateral contract by which the offeror promises not to revoke once the offeree commences the act of acceptance of the principal offer. But even if such an ancillary contract should be implied in all cases, it is one thing to say that there is a contractually binding promise not to revoke and another thing to say that a purported revocation will be ineffective. The normal remedy for a revocation in breach of the ancillary contract would be an award of damages, the amount of which would be assessed, no doubt, by reference to the prospect that the act of acceptance would have been completed, and, by the same act, the offered promise duly ‘paid for’. No doubt it might be possible for the offeree to seek specific relief in the form of an injunction restraining the offeror from revoking the offer and from preventing the offeree from providing the executed consideration. … (c) It seems that the general undifferentiated proposition could produce unintended and unjust results. Assume that X made a public offer of payment for the collection and supply of information of a kind described in the offer; that A, B and C embark upon collecting the information; and that A supplies it to X. According to the general proposition, X is bound not to revoke the offer made to B and C, notwithstanding the inutility of their

[page 69] subsequently supplying to X the information that A has already provided. It may be replied that the terms of the offer would include an implied qualification. But this very response bespeaks the inadequacy of a universal rule. We turn next to the [Australian] authorities which are said to support the general proposition. In Abbott v Lance, Lance stated to Abbott that he was willing to sell two stations and stock for a certain price on certain terms. Abbott was unwilling to purchase without inspecting. Inspection, which would involve travel to the properties, would take two months. The parties agreed that if Abbott should make, within that period, a bona fide offer to purchase at the price and on the terms agreed, but Lance should have sold to another party in the meanwhile, Lance would pay £100 to Abbott. Pursuant to the agreement, Abbott set out to inspect the stations which were about 500 miles away. When about half way there, he received a letter from Lance informing him that they had been sold. Abbott discontinued his journey and did not make an offer. The question for decision was whether Abbott was entitled to the sum of £100. The court … held that he was. On any view, the case is an awkward one. It is reported in a mere three pages and the report contains internal inconsistencies. The court itself said: The agreement is certainly somewhat obscure and we have had some difficulty in coming to a conclusion as to the rights of the parties.22 The Court described the contract as being in substance ‘an agreement by the defendant to keep the offer open two months, if the plaintiff will go and inspect the stations’, yet as being also an agreement to sell to the plaintiff at an agreed price ‘unless previously sold’. Similarly, their Honours referred to the defendant’s promise to pay £100 as being dependent on his having previously sold to another, yet as being also dependent on the plaintiff’s having made a bona fide offer to purchase. The decision itself can be supported if the contract is conceived of as a promise to pay £100 as compensation for the plaintiff’s having embarked upon his inspection trip and been deprived of the opportunity of making a

bona fide offer within two months by the defendant’s having previously sold to another. This view ignores the reference to a bona fide offer, but apparently this is exactly what their Honours did: they accepted that once the defendant had sold, he had made it impossible for the plaintiff to make a bona fide offer. It should be noted that the contract expressly reserved to the defendant the liberty to sell to another party subject to his paying £100 to the plaintiff. In substance, the contract in Abbott v Lance was simply a promise to pay £100 as compensation for the plaintiff’s time, trouble and expense in undertaking the inspection trip if the defendant should cause them to be wasted by selling to someone else, upon a condition that they would only be taken to have been wasted if the sale by the defendant occurred within two months and could be seen to have prevented the plaintiff from making, within that period, a bona fide offer to purchase. The view of the case which we have advanced is consistent with the final, if characteristically tantalising, paragraph of the report: [page 70] The present case does not affect the general proposition that an offer may be retracted before acceptance, because we consider that the part performance of the journey constituted a sufficient consideration to give the plaintiff a right in the events that have happened.23 Their Honours appear to be indicating here that they were treating the act of acceptance (and the executed consideration) as the undertaking of the trip, and, one presumes, non-abandonment of it down to the time of notification of the defendant’s sale to another. … In Veivers v Cordingley, McPherson J appears to have applied the general proposition on the basis that Abbott v Lance was authority for it. The following is the relevant passage from his Honour’s judgment: There can be no doubt that, ordinarily an offer can be withdrawn before acceptance. It may well be a different matter if, in the case of

what is commonly called a ‘unilateral contract’, the promisee has already entered upon the act which, when completed, will constitute acceptance of the promise. … The only decision directly in point is that of the Supreme Court of New South Wales in Abbott v Lance. … It seems to me that the decision in Abbott v Lance is authority for propositions that, although as a general rule an offer may be retracted before acceptance, yet, if it takes the form of an offer in exchange for the doing of an act or acts, then: (1) acceptance takes place when the offeree ‘elects’ to do the relevant act or acts; and (2) the offer becomes irrevocable once the act or acts, which will constitute consideration for the offer, have been partly performed.24 … For the reasons indicated earlier, we do not accept that there is a universal proposition that an offeror is not at liberty to revoke the offer once the offeree ‘commences’ or ‘embarks upon’ performance of the sought act of acceptance (being also the sought executed consideration for the offered promise). If and to the extent that any of the authorities to which we have referred say otherwise, we would respectfully disagree. In any event, even if it be assumed that an offeror has impliedly promised not to revoke in consideration of a commencement of performance of the act of acceptance, it would not follow that a purported revocation would be ineffective. On the contrary, in the absence of specific relief in respect of that promise, the offeror’s revocation would be effective, although leaving the offeror liable in damages. It should not be thought that the absence of a universal rule is unjust. In the circumstances of a particular case, it may be appropriate to find that the offeror has entered into an implied ancillary contract not to revoke, or that the offeror is estopped from falsifying an assumption, engendered by it, that the offeree will not be deprived of the chance of completing the act of acceptance.

[page 71]

Comments 4.8.1 4.8.2

See Radan, Gooley, and Vickovich at 4.67–4.68. In Forbes v Australian Yachting Federation Inc (1996) 131 FLR 241 at 283–4, Santow J observed that in circumstances where an offeree has commenced performance of the terms of the offer, there may well be an implied promise by the offeror not to revoke the offer, but it may also be that the offeree could bring an action against the offeror pursuant to the more flexible principles of equitable estoppel (see Chapter 36) if the offeror sought to revoke the offer before the offeree had a reasonable opportunity to perform the terms of the offer.

ACCEPTANCE OF OFFERS AND RELIANCE 4.9C

R v Clarke (1927) 40 CLR 227

Court: High Court of Australia Facts: The Western Australian government offered a reward of £1000 for information leading to the arrest and conviction of the murderers of two police officers. Clarke, who knew of the reward offer, gave information at the trial of those charged with the murders that led to their convictions, thereby satisfying the conditions of the reward. At the time, Clarke made the following statements: ‘When I gave evidence in the Criminal Court I had no intention of claiming the reward. I first decided to claim the reward a few days after the appeal had been dealt with. Inspector Condon told me to make application. I had not intended to apply for the reward up to that date. I did not know exactly the position I was in. Up to that time I had not considered the position. … I had not given the matter consideration at all. My motive was to clear myself of the charge of murder. I gave no consideration and formed no intention with regard to the reward.’ Clarke then claimed the reward. Issue: The issue before the High Court was whether Clarke’s actions

in satisfying the terms of the reward amounted to an acceptance of the offer of the reward. Decision: The High Court (Isaacs ACJ, Higgins and Starke JJ) found in favour of the Crown on the basis that at the time he gave the information, Clarke did not have it in his mind to claim the reward. His decision to do so was made subsequently. Thus, Clarke’s providing of the information required by the reward proclamation was not a valid acceptance of the offer of the reward and he was not entitled to claim it. Extract: The extracts from the three judgments in the High Court focus on the principle that an effective acceptance of an offer is one made in reliance upon the offer.

Isaacs ACJ The information for which Clarke claims the reward was given by him when he was under arrest … on a charge of murder, and was given by him in circumstances which show [page 72] that in giving the information he was not acting on or in pursuance of or in reliance upon or in return for the consideration contained in the proclamation, but exclusively in order to clear himself from a false charge of murder. In other words, he was acting with reference to a specific criminal charge against himself, and not with reference to a general request by the community for information against other persons. It is true that without his information and evidence no conviction was probable, but it is also abundantly clear that he was not acting for the sake of justice or from any impulse of conscience or because he was asked to do so, but simply and solely on his own initiative, to secure his own safety from the hand of the law and altogether irrespective of the proclamation. He has, in my opinion, neither a legal nor a moral claim to the reward. … It is not true to say that since such an offer calls for information of a

certain description, then, provided only information of that description is in fact given, the informant is entitled to the reward. That is not true unless the word ‘given’ is interpreted as ‘given in exchange for the offer’ — in other words, given in performance of the bargain which is contemplated by the offer and of which the offer is intended to form part. Performance in that case is the implied method of acceptance, and it simultaneously effects the double purpose of acceptance and performance. But acceptance is essential to contractual obligation, because without it there is no agreement, and in the absence of agreement, actual or imputed, there can be no contract. … The controlling principle … is that to establish the consensus without which no true contract can exist, acceptance is as essential as offer, even in a case of the present class where the same act is at once sufficient for both acceptance and performance. But acceptance and performance of condition … … involve that the person accepting and performing must act on the offer. … Instances easily suggest themselves where precisely the same act done with reference to an offer would be performance of the condition, but done with reference to a totally distinct object would not be such a performance. An offer of £100 to any person who should swim a hundred yards in the harbour on the first day of the year, would be met by voluntarily performing the feat with reference to the offer, but would not in my opinion be satisfied by a person who was accidentally or maliciously thrown overboard on that date and swam the distance simply to save his life, without any thought of the offer. The offeror might or might not feel morally impelled to give the sum in such a case, but would be under no contractual obligation to do so. …

Higgins J Clarke cannot succeed in this action unless he can establish a contract between the Crown and himself. I think that there was no contract. … [The] statements of Clarke [set out above] show clearly that he did not intend to accept the offer of the Crown, did not give the information on the faith of, or relying on, the proclamation. He did not mentally assent to

the Crown’s offer; there was no moment of time at which there was, till after the information was given, as between Clarke and the Crown, a consensus of mind. … [page 73] Clarke had seen the offer, indeed; but it was not present to his mind — he had forgotten it, and gave no consideration to it, in his intense excitement as to his own danger. There cannot be assent without knowledge of the offer; and ignorance of the offer is the same thing whether it is due to never hearing of it or to forgetting it after hearing. But for this candid confession of Clarke’s it might fairly be presumed that Clarke, having once seen the offer, acted on the faith of it, in reliance on it; but he has himself rebutted that presumption.

Starke J In my opinion the true principle applicable to this type of case is that unless a person performs the conditions of the offer, acting upon its faith or in reliance upon it, he does not accept the offer and the offeror is not bound to him. As a matter of proof any person knowing of the offer who performs its conditions establishes prima facie an acceptance of that offer. … And probably … the performance of some of the conditions required by the offer also establishes prima facie an acceptance of that offer, but does not of course establish the right of the person so performing some of the conditions of the offer to the reward until he has completely performed them all according to the proper construction of the offer. From such facts an acceptance is probable but it is not, as was urged, ‘an absolute proposition of law’ that one, who, having the offer before him, acts as one would naturally be induced to act, is deemed to have acted on the faith of or in reliance upon that offer. It is an inference of fact and may be excluded by evidence. … The statements or conduct of the party himself uncommunicated to the other party, or the circumstances of the case, may supply that evidence. Ordinarily, it is true, the law judges of the intention of a person in making a contract by outward expression only by words or acts communicated between them. … But when the offeror, as in the anomalous

case under consideration, has dispensed with any previous communication to himself of the acceptance of the offer the law is deprived of one of the means by which it judges of the intention of the parties, and the performance of the conditions of the offer is not in all cases conclusive for they may have been performed by one who never hears of the offer or who never intended to accept it. Hence the statements or conduct of the party himself uncommunicated to the other party are admissible to show the circumstances under which an act, seemingly within the terms of the offer, was done and the inducement which led to the act. In the present case the statements of [Clarke] himself satisfied the Chief Justice that he did not act on the faith of or in reliance upon the offer and we are unable to disturb that finding. I should have had more hesitation than the learned Judge in displacing the inference open on the facts that [Clarke] knew of the offer and did in fact supply the Crown with most valuable information. Nowhere in the evidence is it said that he did not act upon the faith of or in reliance upon the offer, and it is unfortunate that no direct question was put to him upon the matter. [Clarke’s] statements are, I think, consistent with the position that he acted upon the offer but had not addressed his mind to the question whether he would or would not claim the reward. However, the proper inference of fact is essentially one for the learned Judge who saw and heard the petitioner.

[page 74]

Comments 4.9.1 See Radan, Gooley, and Vickovich at 4.77–4.79. 4.9.2 For a discussion of this case and an argument that acceptance should be effective even if the offeree does not act in reliance of the offer, see P Mitchell and J Phillips, ‘The Contractual Nexus: Is Reliance Essential?’ (2002) 22 Oxford Journal of Legal Studies 115.

THE POSTAL ACCEPTANCE RULE 4.10C

Household Fire and Carriage Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216

Court: Court of Appeal in England Facts: Grant applied for shares in the Household Fire and Carriage Accident Insurance Company. The Company allotted the shares to Grant, and addressed to him and posted a letter containing the notice of allotment, but the letter was never received by him. Three years later the Company was liquidated. The liquidator sought from Grant amounts yet unpaid on the shares issued to him. Grant claimed he was not liable for the amount on the ground that his offer to buy shares was never accepted because the letter of acceptance never reached him, and that as a consequence he was never the owner of the shares and thus liable to the liquidator as claimed. Issue: The issue before the Court of Appeal was whether posting of the allotment of shares by the Company was a valid acceptance of Grant’s offer. If it was, Grant was liable to the liquidator as claimed. Decision: The majority of the Court of Appeal (Thesiger and Baggally LJJ; Bramwell LJ dissenting) found in favour of the liquidator on the basis that the postal acceptance rule meant that acceptance was complete when the letter of allotment was posted. Whether it was ever received by Grant was irrelevant. Extract: The extracts from the majority judgment of Thesiger LJ and the dissenting judgment of Bramwell LJ present conflicting arguments about the postal acceptance rule.

Thesiger LJ An acceptance, which only remains in the breast of the acceptor without being actually and by legal implication communicated to the offerer, is no binding acceptance. How then are these elements of law to be harmonised in the case of contracts formed by correspondence through the

post? I see no better mode than that of treating the post office as the agent of both parties. … [If] the post office be such common agent, then it seems to me to follow that, as soon as the letter of acceptance is delivered to the post office, the contract is made as complete and final and absolutely binding as if the acceptor had put his letter into the [page 75] hands of a messenger sent by the offerer himself as his agent to deliver the offer and receive the acceptance. What other principle can be adopted short of holding that the contract is not complete by acceptance until and except from the time that the letter containing the acceptance is delivered to the offerer, a principle which has been distinctly negatived? … The acceptor, in posting the letter, has, to use the language of Lord Blackburn, in Brogden v Directors of Metropolitan Ry Co, ‘put it out of his control, and done an extraneous act which clenches the matter, and shews beyond all doubt that each side is bound’.25 How then can a casualty in the post, whether resulting in delay, which in commercial transactions is often as bad as no delivery, or in non-delivery, unbind the parties or unmake the contract? To me it appears that in practice a contract complete upon the acceptance of an offer being posted, but liable to be put an end to by an accident in the post, would be more mischievous than a contract only binding upon the parties to it upon the acceptance actually reaching the offerer, and I can see no principle of law from which such an anomalous contract can be deduced. There is no doubt that the implication of a complete, final, and absolutely binding contract being formed, as soon as the acceptance of an offer is posted, may in some cases lead to inconvenience and hardship. But such there must be at times in every view of the law. It is impossible in transactions which pass between parties at a distance, and have to be carried on through the medium of correspondence, to adjust conflicting rights between innocent parties, so as to make the consequences of mistake on the part of a mutual agent fall equally upon the shoulders of both. At the same time I am not prepared to admit that the implication in question will lead to any great or general inconvenience or hardship. An offerer, if he chooses,

may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance. If he trusts to the post he trusts to a means of communication which, as a rule, does not fail, and if no answer to his offer is received by him, and the matter is of importance to him, he can make inquiries of the person to whom his offer was addressed. On the other hand, if the contract is not finally concluded, except in the event of the acceptance actually reaching the offerer, the door would be opened to the perpetration of much fraud, and, putting aside this consideration, considerable delay in commercial transactions, in which despatch is, as a rule, of the greatest consequence, would be occasioned; for the acceptor would never be entirely safe in acting upon his acceptance until he had received notice that his letter of acceptance had reached its destination.

Bramwell LJ (dissenting) That because a man, who may send a communication by post or otherwise, sends it by post, he should bind the person addressed, though the communication never reaches him, while he would not so bind him if he had sent it by hand, is impossible. There is no reason in it; it is simply arbitrary. … It is said that a contrary rule would be hard on the would-be acceptor, who may have made his arrangements on the footing that the bargain was concluded. But to hold as contended would be equally hard on the offerer, who may have made his arrangements on the footing [page 76] that his offer was not accepted; his non-receipt of any communication may be attributable to the person to whom it was made being absent. What is he to do but to act on the negative, that no communication has been made to him? Further, the use of the post office is no more authorised by the offerer than the sending an answer by hand, and all these hardships would befall the person posting the letter if he sent it by hand. Doubtless in that case he would be the person to suffer if the letter did not reach its destination. Why should his sending it by post relieve him of the loss and cast it on the other

party. It was said, if he sends it by hand it is revocable, but not if he sends it by post, which makes the difference. But it is revocable when sent by post, not that the letter can be got back, but its arrival might be anticipated by a letter by hand or telegram, and there is no case to shew that such anticipation would not prevent the letter from binding. It would be a most alarming thing to say that it would. That a letter honestly but mistakenly written and posted must bind the writer if hours before its arrival he informed the person addressed that it was coming, but was wrong and recalled.

Comments 4.10.1 See Gooley, Radan, and Vickovich at 4.74 and 4.115. 4.10.2 Thesiger LJ’s suggestion that the postal acceptance rule applies because the post office is the common agent for both the offeror and offeree, was rejected in Henthorn v Fraser [1892] 2 Ch 27 at 35– 6. 4.10.3 For a discussion of the case within a broader analysis of the postal acceptance rule, see S Gardner, ‘Trashing with Trollope: A Deconstruction of the Postal Rules in Contract’ (1992) 12 Oxford Journal of Legal Studies 170; D McLauchlan, ‘The Uncertain Basis of the Postal Acceptance Rule?’ (2013) 30 Journal of Contract Law 33; and D M Evans, ‘The Anglo-American Mailing Rule: Some Problems of Offer and Acceptance in Contracts by Correspondence’ (1966) 15 International & Comparative Law Quarterly 553. 4.10.4 For an argument in favour of the offeree being able to validly revoke a posted letter of acceptance by a speedier means of communication before it reaches the offeror, see A Hudson, ‘Retraction of Letters of Acceptance’ (1966) 82 Law Quarterly Review 169.

THE EXTENT OF THE POSTAL ACCEPTANCE RULE 4.11C

Brinkibon Ltd v Stahag Stahl und

Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 Court: House of Lords Facts: Brinkibon, an English company, was negotiating the purchase of steel from Stahag Stahl, an Austrian company. Communications between them were by telex. Although the House of Lords did not determine whether a contract was entered into [page 77] between the parties, it assumed that an offer had been made by Stahag Stahl by telex on 3 May 1979, which was accepted by Brinkibon by telex the following day. Issue: The issue before the House of Lords was when and where a contract would have arisen in these circumstances. This was important because the resolution of this issue would also determine when the contract was entered into and whether it was entered into in England or Austria. Brinkibon argued that the contract was entered into in England, with the consequence that disputes under the contract would be determined by English courts. Decision: The House of Lords (Lords Wilberforce, Fraser of Tullybelton, Russell of Killowen, Bridge of Harwich, and Brandon of Oakbrook) unanimously held such a contract would not be entered into in England on the basis that the postal acceptance rule did not generally apply to telex communications. Thus, the contract would have been entered into in Austria, the place where the offeror (Stahag Stahl) received communication of the acceptance. Extract: The extracts from the speeches by Lord Wilberforce and Lord Fraser of Tullybelton discuss the postal acceptance rule and the extent to which it applies to acceptances other than by letters and telegrams.

Lord Wilberforce In the present case it seems that if there was a contract (a question which can only be decided at the trial), it was preceded by and possibly formed by a number of telephone conversations and telexes between London and Vienna, and there are a number of possible combinations upon which reliance can be placed. … [This case] neatly raises the question whether an acceptance by telex sent from London but received in Vienna causes a contract to be made in London, or in Vienna. If the acceptance had been sent by post, or by telegram, then, on existing authorities, it would have been complete when put into the hands of the post office — in London. If on the other hand it had been telephoned, it would have been complete when heard by the offeror — in Vienna. So in which category is a telex communication to be placed? Existing authority … decides in favour of the latter category, ie a telex is to be assimilated to other methods of instantaneous communication.26 [Brinkibon] ask[s] that this [authority], which has stood for 30 years, should now be reviewed. Now such review as is necessary must be made against the background of the law as to the making of contracts. The general rule, it is hardly necessary to state, is that a contract is formed when acceptance of an offer is communicated by the offeree to the offeror. And if it is necessary to determine where a contract is formed (as to which I have already commented) it appears logical that this should be at the place where acceptance is communicated to the offeror. In the common case of contracts, whether oral or in writing inter praesentes, there is no difficulty; and again logic demands that even where there is not mutual presence at [page 78] the same place and at the same time, if communication is instantaneous, for example by telephone or radio communication, the same result should follow. Then there is the case — very common — of communication at a distance, to meet which the so called ‘postal rule’ has developed. … The rationale for

[the rule] … has … been well explained. Mellish LJ in In re Imperial Land Co of Marseilles27 ascribed it to the extraordinary and mischievous consequences which would follow if it were held that an offer might be revoked at any time until the letter accepting it had been actually received: and its foundation in convenience was restated by Thesiger LJ in Household Fire and Carriage Accident Insurance Co Ltd v Grant.28 In these cases too it seems logical to say that the place, as well as the time, of acceptance should be where (as when) the acceptance is put into the charge of the post office. In this situation, with a general rule covering instantaneous communication inter praesentes, or at a distance, with an exception applying to noninstantaneous communication at a distance, how should communications by telex be categorised? In Entores Ltd v Miles Far East Corporation29 the Court of Appeal classified them with instantaneous communications. Their ruling … appears not to have caused either adverse comment, or any difficulty to business men. I would accept it as a general rule. Where the condition of simultaneity is met, and where it appears to be within the mutual intention of the parties that contractual exchanges should take place in this way, I think it a sound rule, but not necessarily a universal rule. Since 1955 the use of telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or upon the assumption, that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variations may occur. No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie.30 The present case is … the simple case of instantaneous communication between principals, and, in accordance with the general rule, involves that the contract (if any) was made when and where the acceptance was received. This was on May 4, 1979, in Vienna.

Lord Fraser of Tullybelton The question is whether acceptance by telex falls within the general rule that it requires to be notified to the offeror in order to be binding, or within the exception of the postal rule whereby it becomes binding when (and where) it is handed over to the post office. The [page 79] posting rule is based on considerations of practical convenience, arising from the delay that is inevitable in delivering a letter. But it has been extended to apply to telegrams sent through the post office, and in strict logic there is much to be said for applying it also to telex messages sent by one business firm directly to another. There is very little, if any, difference in the mechanics of transmission between a private telex from one business office to another, and a telegram sent through the post office — especially one sent from one large city to another. Even the element of delay will not be greatly different in the typical case where the operator of the recipient’s telex is a clerk with no authority to conclude contracts, who has to hand it to his principal. In such a case a telex message is not in fact received instantaneously by the responsible principal. I assume that the present case is a case of that sort. Nevertheless I have reached the opinion that, on balance, an acceptance sent by telex directly from the acceptor’s office to the offeror’s office should be treated as if it were an instantaneous communication between principals, like a telephone conversation. One reason is that the decision to that effect in Entores v Miles Far East Corporation seems to have worked without leading to serious difficulty or complaint from the business community. Secondly, once the message has been received on the offeror’s telex machine, it is not unreasonable to treat it as delivered to the principal offeror, because it is his responsibility to arrange for prompt handling of messages within his own office. Thirdly, a party (the acceptor) who tries to send a message by telex can generally tell if his message has not been received on the other party’s (the offeror’s) machine, whereas the offeror, of course, will not know if an unsuccessful attempt has been made to send an acceptance to him. It is therefore convenient that the acceptor, being in the

better position, should have the responsibility of ensuring that his message is received. For these reasons I think it is right that in the ordinary simple case, such as I take this to be, the general rule and not the postal rule should apply. But … … the general rule will not cover all the many variations that may occur with telex messages.

Comments 4.11.1 See Radan, Gooley, and Vickovich at 4.63, 4.108, 4.114, and 4.121. 4.11.2 For an example of a case where the postal acceptance rule did apply to an acceptance by telex, see Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244, discussed in Radan, Gooley, and Vickovich at 4.108.

EXCLUSION OF THE POSTAL ACCEPTANCE RULE 4.12C

Bressan v Squires [1974] 2 NSWLR 460

Court: Supreme Court of New South Wales, Equity Division Facts: Squires granted Bressan an option to purchase her property, known as ‘Sunnyside’. Clause 1 of the option agreement stipulated that Bressan could exercise the option ‘by [page 80] notice in writing addressed to [Squires] at any time on or before 20th December, 1972’. Bressan’s written exercise of the option was posted on 18 December 1972 and received by Squires on 21 December 1972. It was established that for a letter posted on 18 December 1972, delivery in the ordinary course of the postal system would have taken place on 21 December 1972. Bressan claimed that the exercise of the option was effective on the date of posting and that he

therefore had a valid contract for the purchase of ‘Sunnyside’. He brought an action against Squires for specific performance of the alleged contract. Squires argued that there was no contract between herself and Bressan for the sale of ‘Sunnyside’ on the basis that the option was not validly exercised because the notice was received after the date stipulated in clause 1 of the option agreement. Issue: The issue before the Supreme Court was whether the postal acceptance rule applied or was excluded in relation to the exercise of the option. If the rule applied, the option was validly exercised and a contract arose between the parties. If the rule was excluded, the option was not validly exercised and no contract arose between the parties. Decision: Bowen CJ in Eq ruled that the postal acceptance rule was excluded, with the consequence that the option was not validly exercised because the notice of exercise was received after the date stipulated in the option agreement. Thus, no contract for the sale of ‘Sunnyside’ arose. Bressan’s application for specific performance was refused. Extract: The extract below discusses the circumstances in which the postal acceptance rule may be excluded and applies these principles to the facts of the case.

Bowen CJ in Eq The main question argued was whether the material date was the date of posting or the date of receipt. The former being within time would result in a contract; the latter being outside would not. The answer to this question turns, I think, upon the interpretation to be placed on cl 1. However, before dealing with that matter, I should mention an argument put forward for [Bressan] that under the general rules applicable to offer and acceptance, acceptance of the irrevocable unilateral offer constituted by the option agreement was complete and effective when the notice of exercise was posted. The general rule is, of course, that a contract is not concluded until

acceptance of an offer is actually communicated to the offeror. To this rule there is an exception in the case of acceptance by post. There have been various formulations of the exception and various reasons assigned for its existence. Many of these reasons have later been said to be unsound. The exception, it seems, is really based upon notions of expediency and convenience, as these are envisaged by the courts from time to time. It is an important exception, since it may determine not only whether or when a contract has been made but also where it has been made. A formulation of the exception, which is often quoted, is that of Lord Herschell in Henthorn v Fraser. His Lordship said: ‘Where the circumstances are such that it must have been within [page 81] the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted’.31 According to this formulation, all that needs to be in contemplation of the parties is the post as a mode, indeed as a possible or permitted mode, for the law to impose the consequence that the contract is concluded by the action of posting. It is not required that it should be within the contemplation of the parties that the action of posting should have the consequence of concluding the contract; this, of course, would apply in relatively fewer cases, and would narrow the application of the exception. … In the present case the parties must, in my view, have contemplated that the option might be exercised by means of a notice sent through the post. Accordingly the exception applies and there is here a concluded contract, unless there is some other ground for holding this result does not follow. Two grounds are suggested. The first is that the exception, being based upon notions of expediency and convenience does not apply where its application would produce manifest inconvenience, and absurdity; that this is particularly so with options for the purchase of land, where, if the exception applies, the offeror may, where

the letter is delayed or goes astray, become a trustee of the land without becoming aware of it, or without becoming aware of it until a substantial period of time has elapsed. … Some supports for this ground may be found in the reasons for judgment of Lawton LJ in Holwell Securities Ltd v Hughes.32 However, I am not prepared to decide the present case on this basis. The second ground brings me finally to the question of the proper interpretation of the option agreement in this case. It is submitted on behalf of [Squires that] the provision that the option may be exercised by ‘notice’ to her imports the notion of actual communication to her, and requires the application of the general rule that acceptance must be communicated and not the application of the exception. It is true the word ‘notice’ generally imports the notion of communication of information. Support for [Squires’] submission is to be found in Holwell Securities Ltd v Hughes.33 However, on behalf of [Bressan] it is submitted the parties have in cl 1 actually stipulated that the option may be exercised by notice posted on or before 20th December, 1972. Though they have not used the word ‘posted’, they have used the words ‘addressed to me at any time on or before 20th December, 1972’, and this means the same thing. This, it can be said, distinguishes the case from Howell Securities Ltd v Hughes. In my opinion, had the parties in cl 1 said: ‘This option may be exercised by you by notice in writing posted to me on or before 20th December, 1972’,z the argument put for [Bressan] would clearly be correct. Indeed, if that is what the parties intended, it is difficult to see why they did not say so, in plain terms. To say: ‘This option may be exercised by you by notice in writing addressed to me on or before 20th December, 1972’ left the matter ambiguous. The words ‘addressed to me’ [page 82] may be a mere characterization of the notice, indicating what kind of notice it should be, how it should be directed. Or, the word ‘addressed’ may carry what is one of its dictionary meanings, even though one less frequently used, and refer to the action of sending the notice.

The matter is largely one of impression. The impression I gain from reading the option is that the parties were, in cl 1, simply describing the notice, and were not stipulating that it should be exercised by being addressed in the sense of sent or posted on or before 20th December, 1972. For this reason I think that what was required for due exercise was actual notice to [Squires] on or before 20th December, 1972. Since actual notice was not received by [Squires] until 21st December, 1972, [Bressan] must fail.

Comment 4.12.1 See Radan, Gooley, and Vickovich at 4.115.

ALTERNATIVES TO OFFER AND ACCEPTANCE ANALYSIS 4.13C Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979]

1 All ER 965 Court: Court of Appeal in England Facts: Butler offered to supply Ex-Cell-O a specified machine for a particular price. The standard form of offer used by Butler contained a price escalation clause that allowed for the price to be increased in certain circumstances. Ex-Cell-O placed an order for the machine at the set price, the order stating that it was subject to Ex-Cell-O’s standard terms which did not contain any price escalation clause. ExCell-O also requested that Butler confirm the order by signing and returning a tear-off slip attached to the order. Butler did so, but noted that the acknowledgment was in accordance with the original offer that had been sent to Ex-Cell-O. The machine was built and Butler claimed a price that had been increased in accordance with the price escalation clause. Ex-Cell-O claimed that the contract did not contain any price escalation clause.

Issue: The issue before the Court of Appeal was whether or not the contract included Butler’s price escalation clause. Decision: The Court of Appeal (Lord Denning MR, Lawton and Bridge LJJ), by applying traditional rules of offer, counter-offer, and acceptance, unanimously held that the contract did not include the price escalation clause. The court held that, in response to Butler’s offer to supply the machine, Ex-Cello-O’s order, which did not include the price escalation clause, was a counter-offer, which was accepted by Butler’s return of the tear-off slip. The notation on the tear-off slip was interpreted as being simply a reference to the price and identity of the machine, and did not amount to a reaffirmation of the terms and conditions in its original offer. [page 83] Extract: The extract from the judgment of Lord Denning MR sets out the reasoning of the court. However, it also comments upon the difficulty in applying traditional offer and acceptance analysis in these ‘battle of the forms’ cases and suggests alternative approaches that may be taken.

Lord Denning MR If those documents are analysed in our traditional method, the result would seem to me to be this: the quotation of 23 May 1969 was an offer by [Butler] to [Ex-Cello-O] containing the terms and conditions on the back. The order of 27 May 1969 purported to be an acceptance of that offer in that it was for the same machine at the same price, but it contained such additions as to cost of installation, date of delivery and so forth, that it was in law a rejection of the offer and constituted a counter-offer. That is clear from Hyde v Wrench.34 As Megaw J said in Trollope & Colls Ltd v Atomic Power Constructions Ltd: ‘… the counter-offer kills the original offer’.35 The letter of the sellers of 5 June 1969 was an acceptance of that counter-offer, as is shown by the acknowledgment which [Butler] signed

and returned to [Ex-Cello-O]. The reference to the quotation of 23 May 1969 referred only to the price and identity of the machine. … In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out-of-date. This was observed by Lord Wilberforce in New Zealand Shipping Co Ltd v A M Satterthwaite.36 The better way is to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points, even though there may be differences between the forms and conditions printed on the back of them. As Lord Cairns LC said in Brogden v Metropolitan Railway Co: … there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description.37 Applying this guide, it will be found that in most cases when there is a ‘battle of forms’ there is a contract as soon as the last of the forms is sent and received without objection being taken to it. … The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest term and conditions: and, if they are not objected to by the other party, he may be taken to have agreed to them.38 … In some cases, however, the battle is won by the man who gets the blow in first. If he offers to sell at a named price on the terms and conditions stated on the back and the buyer orders the goods purporting to accept the offer on an order form with his own different terms and conditions on the back, then, if [page 84] the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller. There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. The terms and conditions of both

parties are to be construed together. If they can be reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable, so that they are mutually contradictory, then the conflicting terms may have to be scrapped and replaced by a reasonable implication.

Comments 4.13.1 See Radan, Gooley, and Vickovich at 4.122–4.126. 4.13.2 For a discussion of this case, see R Rawlings, ‘The Battle of the Forms’ (1979) 42 Modern Law Review 715.

1.

8th ed, p 47.

2. 3.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 at 802. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 at 802– 3.

4. 5.

[1843–60] All ER Rep 620. Payne v Cave [1775–1802] All ER Rep 492.

6. 7.

Bowstead and Reynolds on Agency (16th edn, 1995) para 9-001 and Mainprice v Westley (1865) 122 ER 1250. Thornett v Haines (1846) 153 ER 892.

8. 9.

Denton v Great Northern Railway Company (1856) 119 ER 701. Warlow v Harrison [1843–60] All ER Rep 620 at 622.

10. 11.

Warlow v Harrison [1843–60] All ER Rep 620 at 623. Harris v Nickerson (1873) LR 8 QB 286 at 288.

12. 13.

[1893] 1 QB 256 at 266. Hispanica de Petroleos SA v Vencedora Oceanica Navegacion SA, The Kapetan Markos NL (No 2) [1987] 2 Lloyd’s Rep 321 at 331.

14. 15.

White & Carter (Councils) Ltd v McGregor [1962] AC 413 at 430. (1840) 49 ER 132.

16. 17.

(1790) 100 ER 785. Routledge v Grant (1828) 130 ER 920.

18. 19.

Adams v Lindsell (1818) 106 ER 250. Dunlop v Higgins (1848) 9 ER 805.

20. 21.

Tayloe v Merchants’ Fire Insurance Co 50 US (9 How) 390 (1850). (1880) 5 CPD 344.

22.

Abbott v Lance (1860) Legge 1283 at 1284.

23.

Abbott v Lance (1860) Legge 1283 at 1285.

24. 25.

Veivers v Cordingley [1989] 2 Qd R 278 at 297–8. Brogden v Directors of Metropolitan Ry Co (1877) 2 App Cas 666 at 691.

26. 27.

Entores Ltd v Miles Far East Corporation [1955] 2 QB 327. (1872) LR 7 Ch App 587 at 594.

28. 29.

(1879) 4 Ex D 216 at 223. [1955] 2 QB 327.

30. 31.

See Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 at 227 and Henthorn v Fraser [1892] 2 Ch 27. Henthorn v Fraser [1892] 2 Ch 27 at 33.

32. 33.

[1974] 1 All ER 161 at 166, 167. [1974] 1 All ER 161 at 164.

34. 35.

(1840) 49 ER 132. Trollope & Colls Ltd v Atomic Power Constructions Ltd [1962] 3 All ER 1035 at 1038.

36. 37.

[1975] AC 154 at 167. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 672.

38.

British Road Services Ltd v Arthur V Crutchley & Co Ltd [1968] 1 All ER 811 at 816–17.

[page 85]

5 THE REQUIREMENTS OF CERTAINTY AND COMPLETENESS

INTRODUCTION 5.1 In addition to the formative elements of offer, acceptance, and consideration, a contract must be sufficiently certain and complete to be valid. This means that a court must be sufficiently certain what the parties have agreed, and that their contract must set out those essential terms without which the contract cannot be enforced. Generally, courts will look to uphold agreements, especially in commercial dealings, rather than declare them void for uncertainty or lack of completeness. However, if a contractual term, or even an agreement as a whole, is incomplete or uncertain, it is void. Moreover, where it is clear that parties consider themselves bound to an agreement, courts will seek to give it effect even if the parties are yet to agree on some of its terms. In particular, a contract is likely to be considered sufficiently complete where it provides for a mechanism by which the essential terms may be determined, as illustrated by Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 (see 5.2C). Where a contract fails to provide such a mechanism and simply leaves a term to be agreed upon later in a vague or unclear way, it is likely that the term, and even where necessary the contract itself, will be declared void for uncertainty. This was the outcome in Whitlock v Brew (1968) 118 CLR 445 (see 5.3C). Courts will generally not enforce arrangements whereby the parties ‘agree to agree’ at some later stage. Such arrangements are void for uncertainty.

However, courts may in appropriate circumstances hold that an agreement to negotiate in good faith towards a more comprehensive agreement is not void for uncertainty. This may be the case, such as in United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 (see 5.4C), where the parties are not engaged in open-ended bargaining about a range of issues, but are trying to resolve a defined dispute within a framework fixed by their contract. An often contentious aspect of certainty involves agreements that are ‘subject to contract’. These are cases where the parties have reached an informal agreement about essential terms, but also envisage a more formal contract being prepared and executed later. The issue that arises is whether the earlier informal agreement is enforceable if the contemplated formal contract is not entered into. This often arises in the context of commercial parties who negotiate and draw up ‘heads of agreement’ or verbally arrive at a ‘preliminary agreement’. Typically, one party seeks to enforce the earlier agreement and the other party expects contractual obligations to arise only at the later time. The High Court in Masters v Cameron (1954) 91 CLR 353 (see 5.5C) [page 86] provided a useful means by which the possible obligations may be categorised and then applied to the facts of any given situation. The Court of Appeal decision in New South Wales in Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 (see 5.6C) illustrates the working of these principle in establishing the intention of the parties as to whether the earlier informal agreement is enforceable.

AGREEMENTS MUST BE SUFFICIENTLY COMPLETE 5.2C

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600

Court: High Court of Australia

Facts: Wilson leased premises from Booker for a period of three years. Clause 4.01 of the lease granted Wilson an option for a further lease for a term of three years. The option clause stipulated that the terms of the new lease would be the same as in the original lease, with the exception of the rent. In relation to the rent, cl 4.01 stipulated that it would be ‘the rental as may be mutually agreed between the Lessor and the Lessee and failing agreement then such rental as may be fixed by an arbitrator nominated in accordance with the provisions of cl 3.05(b) but in any event the rental shall not be less than the rental payable in the last year of the first term’. Clause 3.05(b) provided for the appointment of a single arbitrator to be nominated by the President for the time being of the Queensland Law Society. Wilson sought to exercise his rights pursuant to the option clause. Booker rejected Wilson’s claim, arguing that the option clause was void for incompleteness as to an essential term, namely, the rent. Wilson brought an action for specific performance in relation to the option clause. Issue: The issue before the High Court was whether the option clause was sufficiently complete to be enforceable by a decree of specific performance. Decision: The High Court (Gibbs CJ, Murphy, Wilson, and Brennan JJ) unanimously held in favour of Wilson and ordered specific performance of the option. Extract: The extract from the joint judgment of Gibbs CJ, Murphy and Wilson JJ discusses the issue of completeness and the conditional nature of the decree of specific performance that was granted in the circumstances of the case.

Gibbs CJ, Murphy and Wilson JJ The only issue of substance which now arises for decision is whether the renewal agreement contained in the lease is a concluded agreement. … It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future.

Consequently, if the lease provided for a renewal ‘at a rental to be agreed’ there would clearly be no enforceable agreement. On the other hand, [page 87] it is also well established that the parties to a contract may leave terms — even essential terms — to be determined by a third person. … In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term. There is no further agreement required of the parties. It is true that if they do agree upon that rental, then there is no occasion to resort to the independent mechanism that the lease provides. But, there being no such agreement, all that is required is that the President name a person to fix a figure being not less than the minimum rental operative during the original term. No formality is required to effect the necessary appointment. Either party may request the President to facilitate the fulfilment of the agreement. It may be assumed that if he declines to do so, or if the person nominated declines to carry out the task assigned to him, then the renewal cannot be effected, and that Wilson’s exercise of the option will have been fruitless. Nevertheless, in the circumstances as they stand at present, there is a valid agreement for the renewal of the lease subject to the fixation of a rental for the new term. The fixation of that rental is a condition precedent to the performance of the agreement. It follows that at this stage an order could not be made for the specific performance of the agreement to grant a further lease.1 However, in order to give business efficacy to cll 4.01 and 3.05(b) it is necessary to imply a term that, once the conditions specified in cl 4.01 have been performed, both parties will do all that is reasonably necessary to procure the nomination by the President of an arbitrator.2 … It may be that in the present case the President might nominate an arbitrator at the request of one of the parties, but he might decline to do so unless both parties requested him to act. Given an effective exercise of the option, both parties were under an obligation to request him to nominate an arbitrator, if such a request was reasonably necessary to procure the nomination. In those circumstances there should be a limited decree for specific

performance. … If a lessor agrees to renew a lease at a rent to be fixed by a third party, and agrees (expressly or impliedly) to do all that is reasonably necessary to ensure that the rent is so fixed, it is not right to say that there is no concluded contract until the rent is fixed. There is a contract which immediately binds the lessor to perform his obligation to do all that is reasonably necessary to ensure that the rent is fixed, although the performance of the further obligation to renew the lease is conditional on the rent being fixed. There is no reason in justice or in law why the court should not make an appropriate order for specific performance in such a case, that is, an order that the lessor should do whatever is reasonably necessary to ensure that the rent is fixed, and, if the rent is fixed, should renew the lease.

[page 88]

Comment 5.2.1 See Radan, Gooley, and Vickovich at 5.9–5.12.

AGREEMENTS MUST BE SUFFICIENTLY CERTAIN 5.3C

Whitlock v Brew (1968) 118 CLR 445

Court: High Court of Australia Facts: Whitlock agreed to sell land to Brew. Special Condition 5 of the sale agreement stipulated that Brew would grant a lease of the petrol station on the land to the Shell Company of Australia for the sale of its products ‘on such reasonable terms as commonly govern such a lease’. Whitlock purported to rescind the agreement and forfeited the deposit. Brew sought recovery of the deposit. He argued that Special Condition 5 was uncertain and could not be severed from the rest of the agreement, with the consequence that the whole

agreement was void for uncertainty. If this argument was correct, Brew was entitled to restitution of the deposit. Issue: The issue before the High Court was whether Special Condition 5 was uncertain, thereby rendering the whole of the agreement void for uncertainty. Decision: In a majority decision, the High Court (Kitto, Taylor, Menzies, and Owen JJ; McTiernan J dissenting) held in favour of Brew. The entire agreement was void because of the uncertainty of Special Condition 5, there being no clear evidence of commonly used lease terms that could establish the specific key terms, such as the rent and term of the lease, in the agreement entered into by the parties. Extract: The extract from the joint judgment of Taylor, Menzies, and Owen JJ applies the principles of uncertainty to the facts of the case.

Taylor, Menzies, and Owen JJ The first question to be considered is whether the contention that special condition 5 is uncertain should be upheld. [Whitlock] asserts that it should not and that, in effect, that clause simply provides that in the event of there being no agreement as to the terms of the contemplated lease, including both the period during which it is to subsist and the rent to be paid, the parties shall enter into a lease in the form settled by an arbitrator. Of course, if this were so the basis for the contention that the clause is uncertain would disappear. But the language of the clause does not permit of this view. The lease is to be ‘upon such reasonable terms as commonly govern such a lease’ and in the event of a dispute ‘as to the interpretation or operation’ of the clause the dispute is to be referred to arbitration. We are firmly of opinion that the expression ‘upon such reasonable terms as govern such a lease’ is not, in the context in which it appears, apt to refer to either the period for which the contemplated lease is to subsist or to the rent to be payable thereunder. Nor do we think that the further expression ‘as [page 89]

to the interpretation or operation’ of this clause covers a dispute as to either of those matters. We, therefore, are of opinion that the clause is uncertain in that it neither specifies nor provides a means for the determination as between the parties of the period for which the contemplated lease shall be granted or the rent which shall be payable thereunder. It, therefore, becomes necessary to determine whether the condition is severable from the rest of the provisions of the contract or whether the whole contract falls. On this point … in Life Insurance Co of Australia Ltd v Phillips … Knox CJ [said]: When a contract contains a number of stipulations one of which is void for uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the instrument as a whole. If the contract be divisible, the part which is void may be separated from the rest and does not affect its validity.3 Observations in the same case make it clear that in seeking to ascertain the intention of the parties to a written contract extrinsic evidence may not be resorted to except where such evidence may be called in aid in the interpretation of the written instrument. Clearly enough, it seems to us, it is not to the point to make an independent examination of extrinsic facts, even if they were within the knowledge of both parties, and upon such evidence to conclude that a particular provision was or was not of importance to them or to either of them; the question for determination is the intention of the parties as disclosed by the contract into which they have entered. … Of course, cases may arise where a vague, uncertain or meaningless clause in a contract may simply be ignored. … But special condition 5 does not fall into any such category; nor can it be said to be a clause inserted solely for the benefit of one of the parties and capable of being waived by him. It is, in a sense, definitive of the ultimate rights which it is contemplated the purchaser is to get under his contract. The clause provides that [Brew] will immediately upon taking possession grant a lease the effect of which will be to deprive him of possession of part of the land in return for a promise to pay rent. Of course, the Shell Co is in no way obliged to take a lease but it is clear enough from the terms of the contract that it was contemplated that it would. The case is, perhaps, not as clear as

the case where a contract for the sale of land is entered into with a reservation to the vendor of an unspecified part.4 … The case more closely resembles Duggan v Barnes,5 where A agreed to sell land to B for a stated price and B undertook to grant a lease to any person who should purchase A’s business. There the court had no difficulty in holding that B’s undertaking was a material and inseverable part of the consideration for A’s promises. In our view the same conclusion must be reached in this case and the fact that here it is the purchaser, and not the vendor, who is asserting the invalidity of the contract is of no consequence. In our opinion [Whitlock’s] appeal should be dismissed.

[page 90]

Comments 5.3.1 See Radan, Gooley, and Vickovich at 5.18–5.19. 5.3.2 In Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2 Lloyd’s Rep 76 at 89, Rix LJ listed the following as a non-exhaustive list of principles to apply in dealing with cases of possible uncertainty: Each case must be decided on its own facts and on the construction of its own agreement. Subject to that: Where no contract exists, the use of an expression such as ‘to be agreed’ in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty. This may be summed up by the principle that ‘you cannot agree to agree’. Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence again on the ground of uncertainty. However, particularly in commercial dealings between parties who are familiar with the trade in question, and

particularly where the parties have acted in the belief that they had a binding contract, the Courts are willing to imply terms, where that is possible, to enable the contract to be carried out. Where a contract has once come into existence, even the expression ‘to be agreed’ in relation to future executory obligations is not necessarily fatal to its continued existence. Particularly in a case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the Courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. … This is especially the case where one party has either already had the advantage of some performance which reflects the parties’ agreement on a long term relationship, or has had to make an investment premised on that agreement. For these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the Courts are prepared to imply an obligation in terms of what is reasonable.

[page 91]

AGREEMENTS TO NEGOTIATE IN GOOD FAITH AND THE REQUIREMENT OF CERTAINTY 5.4C United Group Rail Services Ltd v Rail Corporation New South

Wales (2009) 74 NSWLR 618

Court: Court of Appeal in New South Wales Facts: United Group Rail Services, in two contracts undertook to design and build new rolling stock for Rail Corporation. Both contracts contained an identical cl 35.11, which stipulated that any difference or dispute that arose between the two parties to the contract would be referred to senior representatives of each party. These representatives were then obliged to ‘meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference’. Issue: The issue before the Court of Appeal was whether cl 35.11 was enforceable or void for uncertainty. Decision: The Court of Appeal (Allsop P, Ipp and Macfarlan JJA) unanimously upheld the validity of cl 35.11 on the basis that such clauses could, in appropriate circumstances, be valid and enforceable. Extract: The extract from the judgment of Allsop P, who gave the only judgment in this case, explains the reason why, in appropriate circumstances, an agreement to negotiate in good faith is not void for uncertainty and may be enforced.

Allsop P [In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, Kirby P] cautiously, but decidedly, [put] the view that an agreement to negotiate in good faith might be enforceable, depending on its terms and context. … His Honour was not stating an all encompassing generalised test or formula. … In Trawl [Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326], Samuels JA made the valuable point … that uncertainty and incompleteness were different concepts. I agree. … [G]iven the juristic debate that has taken place about agreements to negotiate in good faith, it is helpful to begin with some essential propositions founded on accepted authority and principle. First, an

agreement to agree is incomplete, lacking essential terms.6 (That is not a question of uncertainty or vagueness, but the absence of essential terms.) Secondly, the task of the Court is to give effect to business contracts where there is a meaning capable of being ascribed to a word or phrase or term or contract, ambiguity not being vagueness.7 … [page 92] Thirdly, good faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions. It has been recognised by this Court to be part of the law of performance of contracts.8 … There are other decisions of Australian courts and discussions by scholars recognising the obligation of good faith in a non-fiduciary context. It is fair to say that caution (in some cases a lack of enthusiasm) has been expressed by some. … Whilst … the law in Australia is not settled as to the place of good faith in the law of contracts, this Court should work from the position that it has said on at least three occasions (not including Renard) that good faith, in some degree or to some extent, is part of the law of performance of contracts. … [I]n my view, Kirby P’s reasons [in Coal Cliff Collieries v Sijehama] are more persuasive than the competing authority. … I turn to the major contrary appellate decisions. In … Courtney,9 … Lord Denning MR equated an agreement to negotiate with an agreement to agree. The latter is, of course, not enforceable.10 … It does not follow, however, that an agreement to undertake negotiations in good faith fails for the same reason. An agreement to agree to another agreement may be incomplete if it lacks essential terms of the future bargain. An agreement to negotiate, if viewed as an agreement to behave in a particular way, may be uncertain, but is not incomplete. The objection that no court could

estimate the damages because no one could tell whether the negotiations ‘would be’ successful ignores the availability of damages for the loss of a bargained for valuable commercial opportunity.11 The relevant question is whether the clause has certain content. Nor, with respect, do I find the views of Lord Ackner in Walford v Miles12 persuasive. An obligation to undertake discussions about a subject in an honest and genuine attempt to reach an identified result is not incomplete. It may be referable to a standard concerned with conduct assessed by subjective standards, but that does not make the standard or compliance with the standard impossible of assessment. Honesty is such a standard.13 Whether it is capable of assessment depends on whether there is a standard of behaviour that is capable of having legal content. Asserting its uncertainty does not answer the question. The assertion [page 93] that each party has an unfettered right to have regard to any of its own interests on any basis begs the question as to what constraint the party may have imposed on itself by freely entering into a given contract. If what is required by the voluntarily assumed constraint is that a party negotiate honestly and genuinely with a view to resolution of a dispute with fidelity to the bargain, there is no inherent inconsistency with negotiation, so constrained. To say, as Lord Ackner did, that a party is entitled not to continue with, or withdraw from, negotiations at any time and for any reason assumes that there is no relevant constraint on the negotiation or the manner of its conduct by the bargain that has been freely entered into. … Of course, it must be that the certainty and content of any contract will depend on its specific terms and context. Sweeping generalised rules, however, are difficult to sustain and not of great assistance. … What the phrase ‘good faith’ signifies in any particular context and contract will depend on that context and that contract. A number of things, however, can be said as to the place of good faith in the operation of the common law in Australia. The phrase does not, by its terms, necessarily import, or presumptively introduce, notions of fiduciary obligation familiar

in equity or the law of trusts. Nor does it necessarily import any notion or requirement to act in the interests of the other party to the contract. The content and context here is a clearly worded dispute resolution clause of an engineering contract. It is to be anticipated at the time of entry into the contract that disputes and differences that may arise will be anchored to a finite body of rights and obligations capable of ascertainment and resolution by the chosen arbitral process (or, indeed, if the parties chose, by the Court). The negotiations (being the course of treaty or discussion) with a view to resolving the dispute will be anticipated not to be open-ended about a myriad of commercial interests to be bargained for from a selfinterested perspective. … Rather, they will be anticipated to involve or comprise a discussion of rights, entitlements and obligations said by the parties to arise from a finite and fixed legal framework about acts or omissions that will be said to have happened or not happened. The aim of the negotiations will be anticipated to be to resolve a dispute about an existing bargain and its performance. Honest and genuine differences of opinion may attend the parties’ views of their rights and obligations. Such things as difficulties of proof and uncertainty as to fact or law may perfectly legitimately strike the parties differently. That accepted, honest business people who approach a dispute about an existing contract will often be able to settle it. This requires an honest and genuine attempt to resolve differences by discussion and, if thought to be reasonable and appropriate, by compromise, in the context of showing a faithfulness and fidelity to the existing bargain. The phrase ‘genuine and good faith’ in cl 35.11 is, as I have said, a composite phrase. It is a phrase concerning an obligation to behave in a particular way in the conduct of an essentially self-interested commercial activity: the negotiation of a resolution of a commercial dispute. Given that context, the content of the phrase involves the notions of honesty and genuineness. Whilst the activity is of a self-interested character, the parties have not left its conduct unconstrained. They have promised to undertake negotiations in a genuine and good faith manner for a limited period (14 days). As a matter of language, the phrase ‘genuine and good faith’ in this context needs little explication: it connotes an honest and genuine approach to

[page 94] the task. This task, rooted as it is in the existing bargain, carries with it an honest and genuine commitment to the bargain (fidelity to the bargain) and to the process of negotiation for the designated purpose. The notion of fidelity to the bargain can be seen as founded, at least in part, on the requirement of a party to do all things necessary to enable the other party to have the benefit of the contract14 and upon the recognition that contractual obligations do not set up a choice or election to perform or pay damages.15 Contractual promises (supported by consideration) comprise legal rights to performance.16 The encompassing of fidelity to the bargain within the concept of good faith, at least in the context at hand — the genuine and good faith negotiation of an existing dispute by reference to an existing contract — does no violence to the language used here by the parties. That the phrase ‘good faith’ contains the notion of fidelity (or faithfulness) to the bargain conforms with what other jurisdictions have seen as the core of the concept and with historical uses of the phrase.17 Most importantly, its strength lies in its closeness to the contractual jurisprudence of the common law and the appreciation that the parties have expressly bound themselves to a good faith standard in seeking to resolve a dispute arising from an existing bargain about the resolution of which dispute they anticipate having different views. The parties have mutually agreed to bring an approach of genuineness and good faith to that process of seeking resolution of any such disagreement. That agreement carried with it, in ordinary language, a requirement to bring an honestly held and genuine belief about their mutual rights and obligations and about the controversy to the negotiations, and to negotiate by reference to such beliefs. These are not empty obligations; nor do they represent empty rhetoric. An honest and genuine approach to settling a contractual dispute, giving fidelity to the existing bargain, does constrain a party. The constraint arises from the bargain the parties have willingly entered into. It requires the honest and genuine assessment of rights and obligations and it requires that a party negotiate by reference to such. A party, for instance, may well not be entitled to threaten a future breach of contract in order to bargain for a lower settlement sum than it genuinely recognises as due. That would not,

in all likelihood, reflect a fidelity to the bargain. A party would not be entitled to pretend to negotiate, having decided not to settle what is recognised to be a good claim, in order to drive the other party into an expensive arbitration that it believes the other party cannot afford. If a party recognises, without qualification, that a claim or some material part of it is due, fidelity to the bargain may well require its payment. That, however, is only to say that a party should perform what it knows, without qualification, to be its obligations under a contract. Nothing in cl 35.11 prevents a party, not [page 95] under such a clear appreciation of its position, from vindicating its position by self-interested discussion as long as it is proceeding by reference to an honest and genuine assessment of its rights and obligations. It is not appropriate to multiply examples. It is sufficient to say that the standard required by the notion of genuineness and good faith within a process of otherwise tactical and self-interested behaviour (negotiation) is rooted in the honest and genuine views of the parties about their existing bargain and the controversy that has arisen in connection with it within the limits of a clause such as cl 35.1. With respect to those who assert to the contrary, a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. It may be comprised of wide notions difficult to falsify. However, a business person, an arbitrator or a judge may well be able to identify some conduct (if it exists) which departs from the contractual norm that the parties have agreed, even if doubt may attend other conduct. If business people are prepared in the exercise of their commercial judgement to constrain themselves by reference to express words that are broad and general, but which have sensible and ascribable meaning, the task of the Court is to give effect to, and not to impede, such solemn express contractual provisions. It

may well be that it will be difficult, in any given case, to conclude that a party has not undertaken an honest and genuine attempt to settle a dispute exhibiting a fidelity to the existing bargain. In other cases, however, such a conclusion might be blindingly obvious. Uncertainty of proof, however, does not mean that this is not a real obligation with real content.

Comment 5.4.1 See Radan, Gooley, and Vickovich at 5.22–5.30.

THE ENFORCEMENT OF INFORMAL AGREEMENTS 5.5C

Masters v Cameron (1954) 91 CLR 353

Court: High Court of Australia Facts: On 6 December 1951 the parties signed a written memorandum for the sale of Cameron’s farm to Masters. The memorandum stated that ‘this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to [Cameron’s] solicitors on the above terms and conditions’. On the same day Masters paid a deposit of £1750 to Cameron’s real estate agent. Later Masters refused to complete the transaction and claimed he was entitled to a refund of the deposit paid to the agent. Cameron claimed that the memorandum created a binding and enforceable contract, even though [page 96] no formal written contract was ever entered into between the parties as envisaged by the 6 December agreement. Issue: The issue before the High Court was whether the

memorandum of 6 December created a binding and enforceable contract. Decision: In a unanimous decision, the High Court (Dixon CJ, McTiernan and Kitto JJ) held in favour of Masters, holding that the memorandum did not create a binding and enforceable contract. Extract: The extract from the joint judgment of the court discusses the principles that apply in determining whether an informal agreement stipulating that a later formal agreement is to be entered into is enforceable if the later formal agreement is never entered into by the parties.

Dixon CJ, McTiernan and Kitto JJ The first question in the appeal is whether … this document on its true construction constitutes a binding contract between [Cameron] and [Masters], or only a record of terms upon which the signatories were agreed as a basis for the negotiation of a contract. … Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and

in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ‘… as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract [page 97] is completed’.18 A case of the second class came before this court in Niesmann v Collingridge where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made ‘on the signing of the contract’. Rich and Starke JJ observed that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours … held that there was no difficulty in decreeing specific performance of the agreement, ‘and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion’.19 Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own.20 The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker21 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. …

So, as Parker J said in Von Hatzfeldt-Wildenburg v Alexander22 in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.23 Nor is any formula, such as ‘subject to contract’, so intractable as always and necessarily to produce that result.24 But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v Marchioness of Ely: ‘if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation’.25 … This being the natural meaning of ‘subject to contract’, ‘subject to the preparation of a formal contract’, and expressions of similar import, it has been recognised throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract. Indeed, Lord Greens MR remarked during the argument in Eccles v Bryan and Pollock26 that when the expression ‘subject to contract’ was used he had never [page 98] known a case in which it had been suggested, much less held, that this did not import that there was nothing binding till the exchange of parts of the formal contract was made. … In the present case the context provides no reason for holding that the case is outside the application of these authorities. The formal contract, it is true, is to be ‘on the above terms and conditions’, but it is to be acceptable to the vendor’s solicitors, and the meaning is sufficiently evident that the contract shall contain, not only the stated terms and conditions expressed in a form satisfactory to the solicitors, but also whatever else the solicitors may fairly consider appropriate to the case. Accordingly … no binding contract for the sale and purchase of the property mentioned in the

document dated 6 December 1951 was made between [Cameron] and [Masters].

Comments 5.5.1 See Radan, Gooley, and Vickovich at 5.31–5.37. 5.5.2 To the three categories noted in Masters v Cameron, a fourth has been added in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628: see Radan, Gooley, and Vickovich at 5.38–5.42. The need to recognise the fourth category is challenged in E Peden, J W Carter and G Tolhurst, ‘When Three Just Isn’t Enough: The Fourth Category of the “Subject to Contract” Cases’ (2004) 20 Journal of Contract Law 156. It has been argued that the four categories should be abandoned and replaced by two categories — the first being agreements intended to be legally binding that are sufficiently complete to be enforceable, and the second being agreements that are not intended to be legally binding or that are not sufficiently complete: D W McLauchlan, ‘In Defence of the Fourth Category of Preliminary Agreements: Or Are There Only Two?’ (2005) 21 Journal of Contract Law 286. On the other hand, it has been suggested that all the categories should be dispensed with, and that the question to be determined in any given case is ‘whether the objective intention of the putative parties … shows an intention to be bound’: B Walker, ‘The Fourth Category of Masters v Cameron’ (2009) 25 Journal of Contract Law 108 at 116–17. 5.5.3 In relation to entering into formal contracts for the sale of land, in Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521 at 527–8, McPherson SPJ said: The usual expectation of parties in negotiations of the sale of land is that they will not be taken to have made a concluded bargain unless and until a formal contract is executed. In this State real estate is ordinarily agreed to be sold by the execution by vendor and purchaser of a form of contract adopted by the Real Estate Institute of Queensland

and approved by the Queensland Law Society. … This notorious fact largely explains why these days in land sales the ‘expectation is strong that the parties did not intend to be bound until a formal contract is executed’. … Exceptionally, the conduct of the parties may reveal [page 99] an intention to make a binding agreement concerning land before a formal contract is signed. … However such cases are rare. Where solicitors are to assist in the preparation of a contract for the sale of real estate, that factor tends to make it less likely that the parties desire to be finally committed before the contract’s execution.

5.6C Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR

605 Court: Court of Appeal of the Supreme Court of New South Wales Facts: Pavlovic and Universal Music Australia Pty Ltd formed a joint venture to operate a music recording label business, Modular Recordings Pty Ltd. After operating successfully for some years, the relationship between the parties broke down and they both decided to terminate the joint venture. In December 2009 Universal’s solicitors drew up a deed of release and settlement. Among other things, the deed provided for Pavlovic’s resignation from Modular, a restraint on him using the name Modular in the future, the assignment of certain trade marks, the transfer of shares in Modular to him for $100, and mutual releases by the parties. A draft was sent to Pavlovic’s solicitor in ‘final form for execution’ on 23 December 2009. On the following day the solicitor replied by email, stating that Pavlovic ‘will sign’ the proposed deed. A further email stated that he would sign, scan, and send it on the following day. Universal’s

solicitors finally replied with an email that allowed Pavlovic ‘a further 48 hours’ to sign the deed and return it. The respective solicitors then closed their offices for the Christmas break. Pavlovic at some point then asserted to Universal he had signed the deed and appeared to take steps that ‘reasonably indicated’ he was performing some of his obligations under the deed. The deed was never signed by the parties and the $100 consideration for the share transfer was never paid. Pavlovic then changed his mind and contended that the agreement was not binding. Universal argued that an agreement was reached and commenced proceedings. The trial judge found in favour of Universal on the basis of an exchange of offer and acceptance between the solicitors on 23 and 24 December. Pavlovic appealed. Issues: The court had to determine whether the parties, acting through their solicitors, had entered into a binding agreement on the terms of the proposed deed and whether the solicitors had actual or ostensible authority to enter into the agreement on behalf of the parties. Decision: The Court of Appeal (Bathurst CJ, and Beazley P and Meagher JA) unanimously allowed the appeal. The court held that the objectively determined intention of the parties was that they were to be bound only upon the execution of the deed and that solicitors do not have, other than in the context of litigation, ostensible authority to bind their clients to a contract. Extract: The extracts below from the judgment of Beazley P (with whom Bathurst CJ and Meagher JA agreed) indicate the appeal court’s reasoning in respect of the main issues on appeal.

[page 100]

Beazley P Legal principles

Where parties have reached agreement as to all the terms of a contract, but have also agreed that a further, formal agreement is to be executed the question for determination is whether the parties intend to be immediately bound. That is to be determined objectively from the ‘outward manifestations’ of the parties’ intentions.27 The question, therefore, is ‘what each party by words and conduct would have led a reasonable person in the position of the other party to believe’. … An agreement that is incomplete will not give rise to an enforceable contract. It is apparent that by 24 December 2014 the parties had finalised their negotiations. The question in issue is whether they intended to be immediately bound once each party had given assent to the terms of the Proposed Deed or whether their intention, objectively ascertained, was that they would not be bound until all aspects of a formal agreement and, in particular, execution of the relevant documentation, had been finalised. The starting point of [the trial judge’s] consideration of this issue was Masters v Cameron,28 where Dixon CJ, McTiernan and Kitto JJ identified … three categories within which cases, where the parties’ agreement was to be or was to be recorded in writing, may fall as follows: Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.29

In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd McLelland J identified a fourth category: … one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.30 [page 101] However, as his Honour’s review of the case law demonstrated, the Masters v Cameron classifications are no longer, if ever they were, applied as strict categories into which such cases must fall. … Rather, as McHugh JA stated in GR Securities v Baulkham Hills Private Hospital Pty Ltd: … the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances.31 Consistent with the authorities, none of the parties submitted that the case was to be determined solely by reference to one or other of the Masters v Cameron categories. Mr Pavlovic submitted that in its email of 4:13 pm on 24 December 2014, Universal was ‘reserving its right to withdraw from proceeding further with the proposed settlement if the Proposed Deed was not executed and exchanged by the Pavlovic Parties within 48 hours’. Although this submission reflected the language of the third category of Masters v Cameron, Mr Pavlovic reformulated the submission in his reply and in oral argument, submitting that the real question was whether Universal had established that there was an agreement on 24 December 2014 on the terms of the Proposed Deed, binding on the parties, without the deed having been signed or exchanged. Universal contended that the appellants had not established that the 24 December 2014 agreement fell within the third category of Masters v Cameron but recognised that the ultimate question was ‘one of characterisation of the facts as found and recorded’ by the primary judge. Both parties accepted that in determining whether a binding agreement had

come into existence it was relevant to consider the commercial context and surrounding circumstances of the parties’ dealings. … Accordingly, each relied upon the history of the parties’ relationship, the terms of the Proposed Deed, the terms of the emails of 23 and 24 December and the subsequent conduct of the parties. Each argued that those considerations pointed to the conclusion for which they respectively contended. … In my opinion, the formal context in which the parties had always dealt with one another, and the fact that up until 23 December 2014, as Universal accepted, the termination of the relationship was to be concluded in the same formal manner, namely, by execution of the Proposed Deed, do not support Universal’s contentions. This context also does not support [the trial judge’s] finding that the parties intended to be and were bound by the email exchange that occurred on 23 and 24 December 2014. The negotiations were complex. They dealt not only with the conditions upon which Mr Pavlovic’s employment with Universal was to be terminated and the assignment of his shares to Universal, but also the assignment of significant intellectual property rights between the parties, the domain name was to be transferred and his resignation as Managing Director was required. [page 102] All of these matters were the subject of drafts of the Proposed Deed that passed back and forth between the solicitors during the course of the negotiations. There was no indication in the communications between the parties during that process that once the parties’ assent to the various terms and conditions was obtained, they would be bound. The reverse was the case. The negotiations centred on amending the draft documents and neither party had indicated an intention to depart from the formal arrangements envisaged by them throughout the negotiations. … I also do not put any store on Universal’s hypothesis, that although in the past the parties had signed and executed variations to the Shareholders’ Agreement: … there is no basis for concluding that the parties did not regard

themselves as bound by the previous written amendments before the documents had been executed and exchanged. There was no evidence to support this submission and the manner in which the parties conducted their negotiations on this occasion indicates, if anything, that in the past they had bound themselves by execution of the formal documentation. Nor could it reasonably be suggested, given the extensive range of matters that had to be dealt with in order to terminate the relationship between the parties, that termination would involve less formality than all previous dealings between them. The emails of 23 and 24 December 2014 are to be considered in light of the commercial and formal relationship between the parties, the complex dispute they were facing, and the lengthy negotiations that had culminated in the Proposed Deed. These factors indicate an intention to maintain the formalities which had characterised the relationship between the parties as until 24 December 2014. … I do not agree with [the trial judge’s] reasoning … that the consistent references to “Execution Date” or other formal time requirements related only to performance of the terms agreed between the parties. It is unnecessary to analyse all the clauses where the execution date is pivotal to a particular aspect of the parties’ obligations. It is sufficient to refer to cls 2.1, 2.4(a) and cls 3.2, 3.4 and 3.5, to demonstrate why the execution date was more than merely a provision that governed the time of performance. Clause 4 is also relevant, being a central provision in the Proposed Deed. Finally, cl 7.3, which was an “entire agreement clause”, and cl 7.4 which provided that variations were to be in writing and signed by both parties, are relevant. Clause 2.1 provided: (a) This deed is executed by the parties on a ‘without admissions’ basis. (b) Each of [the parties] agree to the following terms of settlement. Clause 2.1 is consistent with the parties being bound by the agreement by entering into the Proposed Deed. Were it otherwise and the parties were already bound, the clause would be surplusage. In particular, cl 2.1(b) would be surplusage, as on Universal’s argument, the parties had already agreed to the terms of the Proposed Deed.

[page 103] Clause 2.4(a) provided that Mr Pavlovic “agrees to assign the Trade Marks … by returning executed copies of the Deed of Assignment of Trade Marks to Universal by the Execution Date”. Clause 2.4(c) related to the transfer of the domain name, which was required on or before the Execution Date. Clause 2.4(c) additionally required Mr Pavlovic to provide evidence that this had occurred “within 1 Business Day of the Execution Date”. Pursuant to cl 3.2, Modular released Mr Pavlovic and the Pavlovic interest from all actions, claims and the like arising out of, relevantly, the registration of the trade marks and the domain name. The transfer of the trade marks and domain name was an important requirement of the agreement. It would make no commercial sense for the parties to bind themselves to this agreement and for Mr Pavlovic not to be required, as a matter of performance of the contract, to transfer essential assets of the business until a time, unspecified by the agreement, when the documents had been fully executed. Likewise, the releases provided in cls 3.4 and 3.5 only came into effect on and from the Execution Date. Again, as a matter of commercial reality, a party would expect to be released from the claims by the opposing party as and from the time the agreement was agreed to be binding. Clause 4 provided for Mr Pavlovic to cause his 50 per cent shareholding to be transferred to Universal for $100 (receipt of which was acknowledged), by the Execution Date. Leaving aside the non-payment of the $100, it would likewise be expected that the transfer of the shares was such an essential aspect of the agreement that its occurrence would not be left to some undefined time, particularly in circumstances where the shares were held in trust by another person. Although the payment of the $100 for the transfer of the shares was essentially nominal, [Universal’s solicitors’] email of 23 December 2014, in which they stated they would forward the executed documents and the $100, indicates that Universal treated the obligation to pay as an important, if not an essential, obligation. His Honour’s finding … that the entire agreement provision in cl 7.3 of the Proposed Deed and the stipulation as to variation in cl 7.4 ‘do not prevent a binding agreement from having been reached’ is correct so far as it goes.

However, alongside the obligations conditioned upon the ‘Execution Date’, these provisions indicate the parties’ intention that the formal steps of execution and exchange be taken before they were bound by the terms of the Proposed Deed. In summary therefore, Universal’s contention that there was a binding agreement by the exchange of emails is contrary to the terms of the Proposed Deed, which provide that the agreement was to take effect upon execution. … In effect, therefore, both parties submitted that the silence in the emails as to whether they were to be immediately bound and the flexibility as to when the Proposed Deed would be signed supported their respective positions. Although the authorities state that it is not necessary to identify a precise offer or acceptance in order to find the existence of a binding contract, I am of the opinion that the language used in the emails was not the language of an immediately binding contract. … In the email of 23 December 2014, [Universal’s solicitors] attached two copies of the Proposed Deed, one in marked up form and the other in ‘final form for execution’. The email [page 104] then confirmed the arrangements it had previously advised as to Universal’s execution and delivery of the deed and stated that they ‘would appreciate if’ [Pavlovic’s solicitor] would do the same. This was not an offer by Universal that it would consider itself immediately bound when it was advised that Mr Pavlovic would sign. As a matter of ordinary language, this was advice as to the proposed arrangements for execution and exchange. As a matter of commercial reality, that information made business sense. [Pavlovic’s solicitor’s] response at 2.36 pm on 24 December 2014 again, as a matter of ordinary language, said nothing about Mr Pavlovic being immediately bound by the terms of the Proposed Deed. It was a response relating to the arrangements for execution and exchange.

For the reasons I have discussed, there was nothing in the surrounding circumstances that cast a different light on the emails. [The trial judge’s] finding that the parties were bound by the email communications does not accord with the past dealings between the parties, nor with the terms of the Proposed Deed. In my opinion, something more than mere silence would have been required to evince the intention to diverge from the parties’ past practice and the terms of the Proposed Deed. …

Comment 5.6.1 See Radan, Gooley, and Vickovich at 5.49–5.50.

1.

Brown v Heffer (1967) 116 CLR 344.

2. 3.

See Butts v O’Dwyer (1952) 87 CLR 267; Kennedy v Vercoe (1960) 105 CLR 521; Sudbrook Trading Ltd v Eggleton (1983) 1 AC 444. Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 72.

4. 5.

Pearce v Watts (1875) LR 20 Eq 492. [1923] VLR 27.

6. 7.

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] 149 CLR 600 at 604. Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 at 436–7.

8.

9.

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263–70; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558 at 565–74; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 363–9. Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297.

10. 11.

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] 149 CLR 600 at 604. Chaplin v Hicks [1911] 2 KB 786; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349ff.

12. 13.

[1992] 2 AC 128 at 138. Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378; Twinsectra Ltd v Yardley [2002] 2 AC 164.

14.

Butt v McDonald (1896) 7 QLJ 68 at 70–1, approved in Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Limited (1979) 144 CLR 596 at 607. United States Surgical Corporation v Hospital Products International Pty Limited [1982] 2 NSWLR 766 at 800.

15. 16. 17.

Ahmed Angullia Bin Hadjee Mohamed Salleh Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 at 634–5; Coulls v Bagot’s Executor and Trustee Company Limited (1967) 119 CLR 460 at 504. H Lücke, ‘Good Faith and Contractual Performance’ in P Finn (ed), Essays on Contract, Law Book

Company, Sydney, 1987, p 161 ff. 18. 19.

Rossiter v Miller (1878) 3 App Cas 1124 at 1151; see also Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 317. Niesmann v Collingridge (1921) 29 CLR 177 at 185.

20. 21.

Governor etc of the Poor of Kingston-upon-Hull v Petch (1854) 156 ER 583. (1950) 80 CLR 304.

22. 23.

[1912] 1 Ch 284 at 289. Farmer v Honan (1919) 26 CLR 183.

24. 25.

Filby v Hounsell [1896] 2 Ch 737. Chinnock v Marchioness of Ely (1865) 46 ER 1066 at 1069.

26. 27.

[1948] Ch 93 at 94. Electricity Generation Corporation v Woodside Energy Ltd 251 CLR 640 at [35]; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59]–[61]; Taylor v Johnson (1983) 151 CLR 422 at 428.

28. 29.

(1954) 91 CLR 353. Masters v Cameron (1954) 91 CLR 353 at 360–2.

30. 31.

(1986) 40 NSWLR 622 at 628. (1986) 40 NSWLR 631 at 634–5.

[page 105]

6 CONSIDERATION

INTRODUCTION 6.1 This chapter deals with one of the essential elements of a contract, namely, the requirement of consideration. For a contract to be created, it is not enough that the parties arrive at an agreement, their agreement must also be supported by consideration. This means that their agreement reflects an exchange of something of value between them, which is often referred to as a ‘bargain’. Without providing something of value in exchange for a promise, the promise remains gratuitous and unenforceable. Where parties do provide consideration, they are simultaneously promisor and promisee for each other. This could be by way of a bilateral contract, which comes into being with the exchange of promises, or it could be by way of the exchange of an act for a promise — a unilateral contract — in which event the contract comes into existence only upon the performance of the act. The principle that consideration must be bargained for may be seen in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 (see 6.2C). Where it is claimed that consideration has been provided, thereby making the promisor’s promise enforceable, it will also be necessary to ensure that it is good or valid consideration. One of the requirements is that the consideration must have moved from the promisee, being the party to whom the promise was made, unless the promise is given to more than one promisee. In such event, the promise is enforceable by any of the promisees, even if consideration is provided by only one of them. This rule, and its joint promisee exception, may be seen in Coulls v Bagot’s Executor and Trustee Co Ltd (1967)

119 CLR 460 (see 6.3C). Another condition of valid consideration is that it must not be ‘past consideration’. This rule requires that the act or promise upon which the promisee relies must not precede the promisor’s promise. An illustration of the rule may be seen in Pao On v Lau Yiu Long [1980] AC 614 (see 6.4C). A further important rule of consideration is that it must be ‘sufficient’ in the sense that it has a discernible value in the eyes of the law. Courts will not be concerned with whether the consideration is adequate in a commercial sense, which is why they will generally not inquire as to whether the promisee has promised to pay less than market value or simply nominal consideration. Unless a valid exception applies, courts have not accepted the performance of a public duty or an existing contractual duty as sufficient consideration because they do not represent the promise of a new price to be paid by the promisee. However, as the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 QB 1 (see 6.5C) shows, this may amount to valid consideration if the promisor gains a ‘practical benefit’ as a result. Furthermore, unless one of several available exceptions applies, the partpayment of a debt by the promisee [page 106] is generally not sufficient consideration for the promisor’s promise to discharge the whole debt. This shows that a promise to do less than what one is contractually bound to do for the promisor is not sufficient consideration (the rule in Pinnel’s Case (1602) 77 ER 237) and is illustrated in Foakes v Beer (1884) 9 App Cas 605 (see 6.6C). Finally, valid consideration may also be provided by way of a forbearance to sue, meaning that a promisee who genuinely gives up a reasonable legal claim against the promisor may enforce the promisor’s promise. Furthermore, consideration is generally not a requirement where the parties choose to execute a deed, which is a formal contract that displaces the need for consideration.

CONSIDERATION MUST BE BARGAINED FOR

6.2C Australian Woollen Mills Pty Ltd v The Commonwealth (1954)

92 CLR 424 Court: High Court of Australia Facts: The Australian Government implemented a scheme to facilitate the supply of wool products to the public at a reasonable price, given that wool was scarce and relatively expensive at the time. The scheme involved the payment of subsidies to Australian wool manufacturers in relation to wool purchased for the production of garments for the Australian market. Australian Woollen Mills purchased considerable quantities of wool. The government did not pay the subsidies on all the wool purchased and Australian Woollen Mills sued the Commonwealth government for the unpaid subsidies, claiming that its purchase of wool was consideration for the promise by the government to pay subsidies to those local wool manufacturers, such as Australian Woollen Mills, who purchased wool. Issue: The issue before the High Court was whether Australian Woollen Mills’ purchase of wool was consideration for a promise by the government to pay the subsidies. Decision: In a joint judgment, the High Court (Dixon CJ, Williams, Webb, Fullagar, and Kitto JJ) rejected Australian Woollen Mills’ claim. The court effectively considered the government’s subsidy scheme as a conditional promise of a gift, which could not be legally enforced. Extract: The extract from the court’s judgment illustrates the need for a connection between the alleged consideration and the promise which it is claimed to support, and the difficulties this requirement can give rise to in cases where the alleged consideration is the performance of an act, rather than the making of a promise in exchange for the promisor’s promise.

The Court

The contract put forward by [Australian Woollen Mills] is … of that type which is commonly said to be constituted by an offer of a promise for an act, the offer being accepted [page 107] by the doing of the act. … There must of necessity be two parties to a contractual obligation. The position in such cases is simply that the consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes acceptance of the offer. A well-known example in which a contract was held to have been made is to be found in Carlill v Carbolic Smoke Ball Co.1 … In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak, the relation of a quid pro quo. One simple example will suffice to illustrate this. A, in Sydney, says to B in Melbourne: ‘I will pay you £ 1,000 on your arrival in Sydney’. The next day B goes to Sydney. If these facts alone are proved, it is perfectly clear that no contract binding A to pay £ 1,000 to B is established. For all that appears there may be no relation whatever between A’s statement and B’s act. It is quite consistent with the facts proved that B intended to go to Sydney anyhow, and that A is merely announcing that, if and when B arrives in Sydney, he will make a gift to him. The necessary relation is not shown to exist between the announcement and the act. Proof of further facts, however, might suffice to establish a contract. For example, it might be proved that A, on the day before the £ 1,000 was mentioned, had told B that it was a matter of vital importance to him (A) that B should come to Sydney forthwith, and that B objected that to go to Sydney at the moment might involve him in financial loss. These further facts throw a different light on

the statement on which B relies as an offer accepted by his going to Sydney. They are not necessarily conclusive but it is now possible to infer (a) that the statement that £ 1,000 would be paid to B on arrival in Sydney was intended as an offer of a promise, (b) that the promise was offered as the consideration for the doing of an act by B, and (c) that the doing of the act was at once the acceptance of an offer and the providing of an executed consideration for a promise. The necessary connection or relation between the announcement and the act is provided if the inference is drawn that A has requested B to go to Sydney. The position has been stated above in terms of the technical doctrine of consideration, and this is, in our opinion, the correct way of stating it. … A test which has not seldom been applied in such cases in order to determine whether a contract has been made or not is to ask whether there has been a request by the alleged promisor that the promisee shall do the act on which the latter relies. Such a request may, of course, be expressed or implied. … Coming to the present case, it is impossible, in our opinion, to hold that any contract was constituted at any stage binding the Commonwealth to pay a subsidy to [Australian Woollen Mils], or to any manufacturer, in consideration of a purchase of wool for local manufacture. … [page 108] The question at issue depends on an examination of documents, and not — except as a last resort — on probabilities. But the documents did not come into existence in a vacuum, and it is a relevant consideration that the announcements on which [Australian Woollen Mills] relies did not emanate from someone who had something to sell or from a rich and generous uncle. When one comes to the documents, it is not, in our opinion, possible to construe them as containing a standing offer, a standing offer capable of acceptance by the purchase of wool. It is impossible to find anywhere anything in the nature of a request or invitation to purchase wool, or anything which suggests that the payment of subsidy was put forward in

order to induce any manufacturer to purchase wool, or which suggests that the payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other. Whichever of the possibly legitimate tests is applied, the answer is the same. If we ask (what we think is the real and ultimate question) whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of an act, we cannot find such a promise. No relation of quid pro quo between a promise and an act can be inferred. If we ask whether there is an implied request or invitation to purchase wool, we cannot say that there is. If we ask whether the announcement that a subsidy would be paid was made in order to induce purchases of wool, no such intention can be inferred.

Comments 6.2.1

See Radan, Gooley, and Vickovich at 6.21–6.23.

6.2.2

The decision in this case can be contrasted with that in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, which is extracted at 4.2C.

CONSIDERATION MUST MOVE FROM THE PROMISEE 6.3C Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR

460 Court: High Court of Australia Facts: Mr Coulls owned land and entered into an agreement by which O’Neil Construction Pty Ltd was given a right to quarry stone from his land. The agreement stipulated that royalties would be paid to Mr and Mrs Coulls as joint tenants — according to the principle of survivorship, where property is held by two or more persons as joint tenants, the property automatically passes to the surviving joint tenant on the death of the other joint tenant. After Mr Coulls’ death the issue was whether the royalties were to be paid to Mrs Coulls or

to the executor of Mr Coulls’ estate. The agreement setting out the arrangement for the payment of royalties was ambiguous as to whether it was between O’Neil Construction on the one part and Mr and Mrs Coulls jointly on the other part, or between O’Neil Construction on the one part and Mr Coulls only on the other part. [page 109] Issue: The issue before the High Court was whether Mrs Coulls could enforce the agreement. The executor of Mr Coulls’ estate argued that because she had not provided any consideration for the royalties payable by O’Neil Construction, she was not entitled to enforce the agreement. Decision: The majority of the High Court (McTiernan, Taylor, and Owen JJ) held that the agreement was one between O’Neil Construction and Mr Coulls only, and that accordingly Mrs Coulls had no right to enforce it. The minority (Barwick CJ and Windeyer J) held that the agreement was one between O’Neill Construction and Mr and Mrs Coulls jointly, and that although she herself had not provided consideration, Mrs Coulls was entitled to enforce it. This was on the basis of the principle that, provided one of a number of joint promisees provides consideration, any other of the joint promisees can enforce the agreement irrespective of whether he or she has provided consideration. Taylor and Owen JJ agreed that the principle applied by the minority judges was correct, but said it was inapplicable to the facts of the case, given their finding that Mrs Coulls was not a joint promisee. Extract: The extract from the judgment of Barwick CJ discusses the principle relating to joint promisees and consideration.

Barwick CJ But as I construe this writing, we have here not a promise by A with B for consideration supplied by B to pay C. It was, in my opinion, a promise

by A made to B and C for consideration to pay B and C. In such a case it cannot lie in the mouth of A, in my opinion, to question whether the consideration which he received for his promise moved from both B and C or, as between themselves, only from one of them. His promise is not a gratuitous promise as between himself and the promisees as on the view I take of the agreement it was a promise in respect of which there was privity between A on the one hand and B and C on the other. Such a promise, in my opinion, is clearly enforceable in the joint lifetime of B and C: But it is only enforceable if both B and C are parties to the action to enforce it. B, though he only supplied the consideration, could not sue alone. If C were unwilling to join in the action as plaintiff, B no doubt, after suitable tender of costs, could join C as a defendant. And A’s promise could be enforced. But the judgment would be for payment to B and C. If B would not join in an action to enforce A’s promise, I see no reason why C should not sue joining B as a defendant. Again, in my opinion, A’s promise would be enforced and a judgment in favour of B and C would result. In neither of these cases could A successfully deny either privity or consideration. … Upon the death of one of the joint promisees the promise remains on foot and remains enforceable but it is still the same promise given to B and C though, because of the death of one and the right of survivorship, the promise is now to pay the survivor. C, it seems to me, being the survivor, may enforce the promise by an action to which both B’s estate and C are parties. However, C could not, in any event, in my opinion, be the sole plaintiff against A because A’s promise was not made with C alone. Consequently, B’s personal representative [page 110] would need to be either a co-plaintiff or joined as a defendant, though in this case the judgment would be for C alone, the promise with B and C being to pay the survivor of them.

Comments

6.3.1

See Radan, Gooley, and Vickovich at 6.31–6.32.

6.3.2

For criticism of the principle in this case, see B Coote, ‘Consideration and the Joint Promisee’ (1978) 37 Cambridge Law Journal 301, where the author argues that the joint promisee principle violates both the rule that consideration must move from the promisee and the doctrine of privity of contract.

‘PAST CONSIDERATION’ IS NOT CONSIDERATION 6.4C

Pao On v Lau Yiu Long [1980] AC 614

Court: Judicial Committee of the Privy Council Facts: The Paos owned shares in a private company, Shing On. The Laus were the majority shareholders in a public investment company, Fu Chip. In February 1973 the Paos contracted to sell their shares in Shing On to Fu Chip in exchange for an allotment of 4.2 million shares in Fu Chip, which had a deemed value of $2.50 a share. The Paos also agreed not to sell 2.5 million of these shares prior to the end of April 1974. By a subsidiary agreement of the same day, the Laus agreed to buy back 2.5 million shares in Fu Chip from the Paos on or before 30 April 1974 at $2.50 per share. The Paos then realised that, when they sold the shares to the Laus pursuant to this agreement, they would not obtain the benefit of any increase in the value of the shares in the meantime. The Paos therefore refused to proceed with the sale of their shares in Shing On to Fu Chip, unless the Laus replaced the subsidiary agreement with an agreement by which the Laus would guarantee the price of the 2.5 million shares at $2.50 a share. On 4 May 1973 the Laus entered into the replacement guarantee agreement. Prior to 30 April 1974, the price of Fu Chip shares had fallen to 36 cents a share. The Paos sought to enforce the guarantee. Issues: The issues before the Privy Council were whether the Paos had provided consideration for the guarantee by the Laus or whether

this was an instance of ‘past consideration’, and whether the Laus’ agreement to the contract of guarantee was obtained as a result of duress exerted by the Paos. Decision: The Privy Council (Viscount Dilhorne, and Lords Wilberforce, Simon of Glaisdale, Salmon, and Scarman) found in favour of the Paos on both issues. (In relation to the issue of duress, see Radan, Gooley, and Vickovich at 17.21.) Extract: The following extract from the decision of the Privy Council, delivered by Lord Scarman, addresses the principles relating to socalled ‘past consideration’ and why the facts in this case did not amount to consideration that was in the past.

[page 111]

Lord Scarman The first question is whether upon its true construction the written guarantee of May 4, 1973, states a consideration sufficient in law to support the [Laus’] promise of indemnity against a fall in value of the Fu Chip shares…. [C]ounsel for the [Paos] before their Lordships’ Board but not below, contends that the consideration stated in the agreement is not in reality a past one. It is to be noted that the consideration was not on May 4, 1973, a matter of history only. The instrument by its reference to the main agreement with Fu Chip incorporates as part of the stated consideration the [Paos’] three promises to Fu Chip: to complete the sale of Shing On, to accept shares as the price for the sale, and not to sell 60 per cent of the shares so accepted before April 30, 1974. Thus, on May 4, 1973, the performance of the main agreement still lay in the future. Performance of these promises was of great importance to the [Laus], and it is undeniable that, as the instrument declares, the promises were made to Fu Chip at the request of the [Laus]. It is equally clear that the instrument also includes a promise by the [Paos] to the [Laus] to fulfil their earlier promises given to Fu Chip. The Board agrees with [counsel for the Paos’] submission that the

consideration expressly stated in the written guarantee is sufficient in law to support the [Laus’] promise of indemnity. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case. The promise given to Fu Chip under the main agreement not to sell the shares for a year was at the [Laus’] request. The parties understood at the time of the main agreement that the restriction on selling must be compensated for by the benefit of a guarantee against a drop in price: and such a guarantee would be legally enforceable. The agreed cancellation of the subsidiary agreement left, as the parties knew, the [Paos] unprotected in a respect in which at the time of the main agreement all were agreed they should be protected. [Counsel for the Paos’] submission is based on Lampleigh v Brathwait. In that case the judges said: First … a meer voluntary courtesie will not have a consideration to uphold an assumpsit. But if that courtesie were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples itself with the suit before, and the merits of the party procured by that suit, which is the difference.2 The modern statement of the law is in the judgment of Bowen LJ in In re Casey’s Patents; Bowen LJ said: Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot [page 112] receive a proper effect in some other way. Now, the fact of a past

service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share.3 [Counsel] for the [Laus], does not dispute the existence of the rule but challenges its application to the facts of this case. He submits that it is not a necessary inference or implication from the terms of the written guarantee that any benefit or protection was to be given to the plaintiffs for their acceptance of the restriction on selling their shares. Their Lordships agree that the mere existence or recital of a prior request is not sufficient in itself to convert what is prima facie past consideration into sufficient consideration in law to support a promise as they have indicated, it is only the first of three necessary preconditions. As for the second of those preconditions, whether the act done at the request of the promisor raises an implication of promised remuneration or other return is simply one of the construction of the words of the contract in the circumstances of its making. Once it is recognised, as the Board considers it inevitably must be, that the expressed consideration includes a reference to the [Paos’] promise not to sell the shares before April 30, 1974 — a promise to be performed in the future, though given in the past — it is not possible to treat the [Laus’] promise of indemnity as independent of the [Paos’] antecedent pro-mise, given at the [Laus’] request, not to sell. The promise of indemnity was given because at the time of the main agreement the parties intended that the [Laus] should confer upon the [Paos] the benefit of his protection against a fall in price. When the subsidiary agreement was cancelled, all were well aware that the [Paos] were still to have the benefit of his protection as consideration for the restriction on selling…. Their Lordships, therefore, accept the submission that the contract itself states a valid consideration for the promise of indemnity.

[page 113]

Comment 6.4.1 See Radan, Gooley, and Vickovich at 6.33–6.37.

THE EXISTING CONTRACTUAL DUTY RULE 6.5C

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

Court: Court of Appeal in England Facts: Roffey Bros, after entering into a contract (the head contract) to renovate a block of 27 flats, subcontracted the carpentry work to Williams for a price of £ 20,000. Williams experienced financial difficulties and informed Roffey Bros that he could not complete the job. Under the head contract Roffey Bros was liable to pay agreed damages to the owner of the block of flats if they completed the work late. In these circumstances Roffey Bros offered to vary the original contract with Williams by increasing the amount to be paid to him by £ 10,300. Williams accepted the proposal, did some more work, but did not fully complete the job. Roffey Bros then engaged other carpenters to continue the job. The renovations were, however, not completed on time and Roffey Bros had to pay agreed damages to the owner for the delay. When Roffey Bros refused to pay Williams for the work he had done after the promise to pay the additional money, he sued to recover the outstanding amount. Roffey Bros argued that Williams had undertaken to do no more in return for the additional money than he already had to do under the subcontract and that, therefore, Roffey Bros’ promise to pay the extra money was not supported by consideration from Williams. Issues: The two issues before the Court of Appeal were whether the incomplete performance of the carpentry work by Williams amounted to substantial performance of his obligation, and whether

Williams provided consideration for Roffey Bros’ promise of the additional payment to complete the carpentry work. Decision: The Court of Appeal (Purchas, Glidewell, and Russell LJJ) unanimously found in favour of Williams in relation to both issues. (On the principles relating to substantial performance, see Radan, Gooley, and Vickovich at 22.45–22.49.) Extract: The extract from the judgment of Glidewell LJ sets out the basis for finding that Williams’ promise to perform his existing contractual duty already owed to Roffey Bros was sufficient consideration for the promise of the additional payment to complete the carpentry work.

Glidewell LJ In his address to us, [counsel for Roffey Bros] Mr Evans outlined the benefits to his clients … which arose from their agreement to pay the additional £ 10,300 as: (i) seeking to ensure that the plaintiff continued work and did not stop in breach of the subcontract; [page 114] (ii) avoiding the penalty for delay; and (iii) avoiding the trouble and expense of engaging other people to complete the carpentry work. However, Mr Evans submits that, though his clients may have derived, or hoped to derive, practical benefits from their agreement to pay the ‘bonus,’ they derived no benefit in law, since [Williams] was promising to do no more than he was already bound to do by his subcontract, ie, continue with the carpentry work and complete it on time. Thus there was no consideration for the agreement. Mr Evans relies on the principle of law which, traditionally, is based on the decision in Stilk v Myrick. That was a decision at first instance of Lord Ellenborough CJ. On a voyage to the Baltic, two seamen deserted. The captain agreed with the rest of the crew that if they worked the ship back to London without the two seamen being replaced, he would divide between them the pay which would have been

due to the two deserters. On arrival at London this extra pay was refused, and the plaintiff’s action to recover his extra pay was dismissed. Counsel for the defendant argued that such an agreement was contrary to public policy, but Lord Ellenborough CJ’s judgment was based on lack of consideration. It reads: … Here, I say, the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed. If they had been at liberty to quit the vessel at Cronstadt, the case would have been quite different; or if the captain had capriciously discharged the two men who were wanting, the others might not have been compellable to take the whole duty upon themselves, and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. But the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. Therefore, without looking to the policy of this agreement, I think it is void for want of consideration, and that the plaintiff can only recover at the rate of £ 5 a month.4 In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd,5 Mocatta J regarded the general principle of the decision in Stilk v Myrick as still being good law. He referred to two earlier decisions of this court, dealing with wholly different subjects, in which Denning LJ sought to escape from the confines of the rule, but was not accompanied in his attempt by the other members of the court. In Ward v Byham [a mother] and [a father] lived together unmarried for five years, during which time the [mother] bore their child. After the parties ended their relationship, the [father] promised to pay the [mother] £ 1 per week to maintain the child, provided that she was well looked after and happy. The [father] paid this sum for some months, but ceased to pay when the [mother] married another man. On her suing for the amount due at £ 1 per week, he pleaded that there was

no consideration for his agreement to pay for the [mother] to maintain her child, since she was obliged by law to do [page 115] so: see section 42 of the National Assistance Act 1948. The county court judge upheld the … mother’s claim, and this court dismissed the [father’s] appeal. Denning LJ said: I approach the case, therefore, on the footing that the mother, in looking after the child, is only doing what she is legally bound to do. Even so, I think that there was sufficient consideration to support the promise. I have always thought that a promise to perform an existing duty, or the performance of it, should be regarded as good consideration, because it is a benefit to the person to whom it is given. Take this very case. It is as much a benefit for the father to have the child looked after by the mother as by a neighbour. If he gets the benefit for which he stipulated, he ought to honour his promise; and he ought not to avoid it by saying that the mother was herself under a duty to maintain the child. I regard the father’s promise in this case as what is sometimes called a unilateral contract, a promise in return for an act, a promise by the father to pay £ 1 a week in return for the mother’s looking after the child. Once the mother embarked on the task of looking after the child, there was a binding contract. So long as she looked after the child, she would be entitled to £ 1 a week. … I would dismiss the appeal.6 … Morris LJ … and Parker LJ held that, though in maintaining the child the [mother] was doing no more than she was obliged to do by law, nevertheless her promise that the child would be well looked after and happy was a practical benefit to the father which amounted to consideration for his promise. In Williams v Williams, a wife left her husband, and he promised to make her a weekly payment for her maintenance. On his failing to honour his promise, the wife claimed the arrears of payment, but her husband pleaded

that, since the wife was guilty of desertion she was bound to maintain herself, and thus there was no consideration for his promise. Denning LJ reiterated his view that: a promise to perform an existing duty is, I think, sufficient consideration to support a promise, so long as there is nothing in the transaction which is contrary to the public interest.7 However, the other members of the court (Hodson and Morris LJJ) declined to agree with this expression of view, though agreeing with Denning LJ in finding that there was consideration because the wife’s desertion might not have been permanent, and thus there was a benefit to the husband. … There is … another legal concept of relatively recent development which is relevant, namely, that of economic duress. Clearly if a subcontractor has agreed to undertake work at a fixed price, and before he has completed the work declines to continue with it unless the contractor agrees to pay an increased price, the subcontractor may be held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he will cause if he does not complete the work. In such a case an agreement to pay an increased price may well be voidable because it was entered into under duress. Thus this concept may provide another answer in law [page 116] to the question of policy which has troubled the courts since before Stilk v Myrick and no doubt led at the date of that decision to a rigid adherence to the doctrine of consideration…. Accordingly, following the view of the majority in Ward v Byham and of the whole court in Williams v Williams and that of the Privy Council in Pao On the present state of the law on this subject can be expressed in the following proposition: (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional

payment in return for A’s promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding. As I have said, Mr Evans accepts that in the present case by promising to pay the extra £ 10,300 his client secured benefits. There is no finding, and no suggestion, that in this case the promise was given as a result of fraud or duress. If it be objected that the propositions above contravene the principle in Stilk v Myrick, I answer that in my view they do not; they refine, and limit the application of that principle, but they leave the principle unscathed eg where B secures no benefit by his promise. It is not in my view surprising that a principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement and limitation in its application in the present day. It is therefore my opinion that on [the] findings of fact in the present case … [Roffey Bros’] promise to pay the extra £ 10,300 was supported by valuable consideration, and thus constituted an enforceable agreement. As a subsidiary argument, Mr Evans submits that on the facts of the present case the consideration, even if otherwise good, did not ‘move from the promisee’. … My understanding of the meaning of the requirement that ‘consideration must move from the promisee’ is that such consideration must be provided by the promisee, or arise out of his contractual relationship with the promisor. It is consideration provided by somebody else, not a party to the contract, which does not ‘move from the promisee’. … Here the benefits to [Roffey Bros] arose out of their agreement of 9 April 1986 with [Williams], the promisee. In this respect I would adopt the following passage from Chitty on Contracts, and refer to the authorities there cited: The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him eg where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment.8

That is the situation in this case. I repeat, therefore, my opinion that the judge was, as a matter of law, entitled to hold that there was valid consideration to support the agreement under which [Roffey Bros] promised to pay an additional £ 10,300 at the rate of £ 575 per flat.

[page 117]

Comments 6.5.1 See Radan, Gooley, and Vickovich at 6.62–6.68. 6.5.2 For discussion and analysis of this case, see B Coote, ‘Consideration and Benefit in Fact and in Law’ (1990) 3 Journal of Contract Law 23; J W Carter, A Phang and J Poole, ‘Reactions to Williams v Roffey’ (1995) 8 Journal of Contract Law 248; M Chen-Wishart, ‘Consideration: Practical Benefit and the Emperor’s New Clothes’, in J Beatson and D Friedmann (eds), Good Faith and Fault in Contract Law, Oxford University Press, Oxford, 1995, p 123; B Coote, ‘Variations Sans Consideration’ (2011) 27 Journal of Contract Law 185; P W Lee, ‘Contract Modifications — Reflections on Two Commonwealth Cases’ (2012) 12 Oxford University Commonwealth Law Journal 189; M Giancaspro, ‘Practical Benefit: An English Anomoly or a Growing Force in Contract Law?’ (2013) 30 Journal of Contract Law 12; M Giancaspro, ‘Should the Practical Benefit Principle Extend to Contract Formation?’ (2104) 42 Australian Business Law Review 389. 6.5.3 Judicial criticism of the decision in this case has been made by Colman J in South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128 at 149–50, where his Honour said: But for the fact that Williams v Roffey Bros Ltd was a decision of the Court of Appeal, I would not have followed it. That decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Lord

Justice Glidewell was substantially based on Pao On v Lau Yin Long [1980] AC 614 in which the Judicial Committee of the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B…. Lord Justice Glidewell regarded Lord Scarman’s reasoning in relation to such tripartite relationship as applicable in principle to a bipartite relationship. But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party. Lord Justice Glidewell substituted for the established rule as to consideration moving from the promisee a completely different principle — that the promisor must by his promise have conferred a benefit on the other party.

THE RULE IN PINNEL’S CASE 6.6C

Foakes v Beer (1884) 9 App Cas 605

Court: House of Lords Facts: In August 1875 Julia Beer obtained judgment against Dr Foakes in the sum of £ 2090 19s. Foakes was liable for interest on the judgment debt that accrued from the [page 118] date of judgment. In December 1876 Beer agreed that if Foakes paid £ 500 immediately and £ 150 twice annually until the entire judgment debt was paid she ‘would not take any proceedings

whatever on the said judgment’. Interest was not included in the sum to be paid pursuant to this agreement. Foakes made payments pursuant to the agreement totalling £ 2090 19s. Beer then brought an action claiming interest on the debt. Issues: The issue before the House of Lords was whether the December 1876 agreement was enforceable. This raised questions of whether, on its proper construction, it meant that Foakes agreed to repay only £ 2090 19s, or £ 2090 19s plus accrued interest on that amount to the date of full repayment. If interest was not included in the agreement, the issue arose as to whether Foakes gave consideration for Beer’s promise ‘not [to] take any proceedings whatever on the said judgment’. Decision: The House of Lords (Earl of Selborne LC, and Lords Blackburn, Watson, and Fitzgerald) unanimously found in favour of Beer. The Earl of Selborne and Lord Fitzgerald held that the December 1876 agreement included accrued interest and that Beer was entitled to sue Foakes to recover it. However, they also held that if they were wrong and the December 1876 agreement did not include the accrued interest, Beer’s promise not to sue Foakes was unenforceable because, following the rule in Pinnel’s Case (1602) 77 ER 237, Foakes had not given consideration for the promise. Lords Watson and Blackburn held that the December 1876 agreement did not include accrued interest. Although both of their Lordships held that Beer’s promise not to sue Foakes was unenforceable because Foakes had not given consideration for the promise, Lord Blackburn expressed major reservations as to whether the principles set out in Pinnel’s Case were correct. Extract: The extracts from the speeches of the Earl of Selborne and Lord Blackburn set out their respective views on the rule in Pinnel’s Case.

Earl of Selborne LC The question … raised by this [case is] whether your Lordships are now prepared, not only to overrule, as contrary to law, the doctrine stated

by Sir Edward Coke to have been laid down by all the judges of the Common Pleas in Pinnel’s Case, … but to treat a prospective agreement, not under seal, for satisfaction of a debt, by a series of payments on account to a total amount less than the whole debt, as binding in law, provided those payments are regularly made; the case not being one of a composition with a common debtor, agreed to, inter se, by several creditors. … The doctrine itself, as laid down by Sir Edward Coke, may have been criticised, as questionable in principle, by some persons whose opinions are entitled to respect, but it has never been judicially overruled; on the contrary I think it has always, since the sixteenth century, been accepted as law. If so, I cannot think that your Lordships would do right, if you were now to reverse, as erroneous, a judgment of the Court of Appeal, proceeding upon a doctrine which has been accepted as part of the law of England for 280 years. … The distinction between the effect of a deed under seal, and that of an agreement by parol, or by writing not under seal, may seem arbitrary, but it is established in our law; [page 119] nor is it really unreasonable or practically inconvenient that the law should require particular solemnities to give to a gratuitous contract the force of a binding obligation. If the question be (as, in the actual state of the law, I think it is), whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given, in the sense in which I have always understood that word as used in our law. It might be (and indeed I think it would be) an improvement in our law, if a release or acquittance of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord and satisfaction (though less than the whole), were held to be, generally, binding, though not under seal; nor should I be unwilling to see equal force given to a prospective agreement, like the present, in writing though not under seal; but I think it impossible, without refinements which practically

alter the sense of the word, to treat such a release or acquittance as supported by any new consideration proceeding from the debtor. … What is called ‘any benefit, or even any legal possibility of benefit’ … is not (as I conceive) that sort of benefit which a creditor may derive from getting payment of part of the money due to him from a debtor who might otherwise keep him at arm’s length, or possibly become insolvent, but is some independent benefit, actual or contingent, of a kind which might be good and valuable consideration for any other sort of agreement not under seal. …

Lord Blackburn There are two things here resolved. First, that where a matter paid and accepted in satisfaction of a debt might by any possibility be more beneficial to the creditor than his debt, the Court will not inquire into the adequacy of the consideration. If the creditor, without any fraud, accepted it in satisfaction when it was not a sufficient satisfaction it was his own fault. And that payment before the day might be more beneficial, and consequently that the plea was in substance good, and this must have been decided in the case. There is a second point stated to have been resolved, viz: ‘That payment of a lesser sum on the day cannot be any satisfaction of the whole, because it appears to the judges that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum’. This was certainly not necessary for the decision of the case; but though the resolution of the Court of Common Pleas was only a dictum, it seems to me clear that Lord Coke deliberately adopted the dictum, and the great weight of his authority makes it necessary to be cautious before saying that what he deliberately adopted as law was a mistake, and though I cannot find that in any subsequent case this dictum has been made the ground of the decision … yet there certainly are cases in which great judges have treated the dictum in Pinnel’s Case as good law. I doubt much whether any judge sitting in a Court of the first instance would be justified in treating the question as open. But as this has very seldom, if at all, been the ground of the decision even in a Court of the first instance, and certainly never been the ground of a decision in the Court of

Exchequer Chamber, still less in this House, I did think it open in your Lordships’ House to reconsider this question. And, notwithstanding the very high authority of Lord Coke, I think it is not the fact that to accept prompt payment of a part only [page 120] of a liquidated demand, can never be more beneficial than to insist on payment of the whole. And if it be not the fact, it cannot be apparent to the judges. … What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for so thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them.

Comments 6.6.1 See Radan, Gooley, and Vickovich at 6.85–6.88. 6.6.2 J O’Sullivan, in ‘In Defence of Foakes v Beer’ (1996) 55 Cambridge Law Journal 219, argues that the law should treat differently promises to pay more, on the one hand, and promises to accept less, on the other. However, if the law treats the two in the same way, she suggests that the approach in Foakes v Beer should be preferred to that of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. For a further discussion of the background to Foakes v Beer and its authority in the light of Williams v Roffey Bros

6.6.3

& Nicholls (Contractors) Ltd and the principles of equitable estoppel, see M Lobban, ‘Foakes v Beer (1884)’, in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Contract, Hart Publishing, Oxford, 2008, pp 223–67. On the question of whether the consequences of the rule in Pinnel’s Case can be overcome by an application of the consideration principles set out in Williams v Roffey Bros & Nicholls (Contractors) Ltd, see Radan, Gooley, and Vickovich at 6.90–6.93; D Thampapillai, ‘Practical Benefits and Promises to Pay Lesser Sums: Reconsidering the Relationship Between the Rule in Foakes v Beer and the rule in Williams v Roffey’ (2015) 34 University of Queensland Law Journal 301; M Arden, ‘Should Consideration be Required for the Consensual Discharge of an Agreement by Part Payment?’, in A Dyson, J Goudkamp and F Wilmot-Smith (eds), Defences in Contract, Hart Publishing, Oxford, 2017, p 111.

1.

(1893) 1 QB 256.

2. 3.

Lampleigh v Brathwait (1615) 80 ER 255 at 255. In re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104 at 115–16.

4. 5.

Stilk v Myrick (1809) 170 ER 1168 at 1169. [1979] QB 705.

6. 7.

Ward v Byham [1956] 2 All ER 318 at 319. Williams v Williams [1957] 1 All ER 305 at 307.

8.

Chitty on Contracts, 26th ed (1989), at 126, para 183.

[page 121]

7 INTENTION TO CREATE LEGAL RELATIONS

INTRODUCTION 7.1 This chapter deals with one of the essential elements of a contract, namely, the existence of an intention to create legal relations. In addition to agreement and consideration, courts require that the parties have manifested an intention to be legally bound to each other in the sense that they understand their agreement to be legally enforceable. This will be determined objectively, substituting the view of the reasonable person for that of the parties’ subjectively-held intention. To determine whether intention has been made manifest, courts have traditionally used two presumptions. Of course, in appropriate cases both presumptions may be rebutted. First, it is presumed that the requisite intention is absent in agreements made between members of a family or close friends. This is illustrated in Balfour v Balfour [1919] 2 KB 571 (see 7.2C), one of the earliest cases in which courts demanded evidence of intention as a matter of public policy. The family, social, and domestic presumption may be rebutted if there is clear evidence that the nature of the transaction is essentially commercial, notwithstanding the family or social relationship, and that one of the parties will suffer loss if the existence of the contract is denied. Issues associated with rebuttal of the family, social, and domestic presumption may be seen in Jones v Padavatton [1969] 2 All ER 616 (see 7.3C). Second, in agreements that are commercial in nature it is presumed that

the requisite intention is present. The operation of the presumption in the context of commercial and business agreements is illustrated by Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117 (see 7.4C), which involved the offer of a ‘free gift’ to petrol consumers. The element of intention is rarely a contentious issue because it can usually be determined that most contracting parties intend to be legally bound due to the commercial nature of their agreements. However, it has often been contested in less obviously commercial settings. For example, where a letter of comfort is provided by a corporation on behalf of one of its subsidiary entities to a lending institution that contracts with the subsidiary, it has been held that any contractual liability of the corporation to the lender will depend on locating intention on a proper construction of the letter itself. Similarly, whether a government instrumentality has the requisite intention to be legally bound when it contracts with an entity, is likely to depend on whether the government body is carrying out a public policy program or acting in the administration of its own interests. In disputes between members of the clergy and their religious organisations, intention has played a pivotal role in determining whether contractual obligations have arisen. These cases led the High Court in Ermogenous v Greek Orthodox Community of South Australia Inc (2002) 209 CLR 95 (see 7.5C) to question the continuing [page 122] utility of the traditional presumptions, an issue that has not yet been clearly resolved. In Ashton v Pratt (2015) 88 NSWLR 281 (see 7.6C) the Court of Appeal in New South Wales applied the approach of the High Court in the context of a case that would otherwise have attracted the application of the presumption in relation to family, social, and domestic arrangements.

THE PRESUMPTION IN FAMILY, SOCIAL, OR DOMESTIC AGREEMENTS 7.2C

Balfour v Balfour [1919] 2 KB 571

Court: Court of Appeal in England Facts: The Balfours, a married couple, had lived in Ceylon (now Sri Lanka) for some years, where the husband was an engineer employed by the Ceylonese Government. They travelled to England in 1915 during the husband’s period of leave. On medical advice, the wife decided to delay her return to Ceylon when her husband’s leave was finished. Just before his departure the couple came to a verbal agreement that the husband would send his wife £30 per month as maintenance while she remained in England. After some time the husband stopped payments and suggested they continue living apart. Although the couple later divorced, it was generally agreed that they were not separated when the husband agreed to pay a monthly maintenance to the wife while he was overseas. Mrs Balfour brought an action to recover the money allegedly owed by her husband. Issue: The issue before the Court of Appeal was whether the Balfours had entered into an enforceable contract in relation to the monthly payments that Mr Balfour had agreed to make to his wife. Decision: The Court of Appeal (Warrington, Duke, and Atkin LJJ) held unanimously on differing grounds that the alleged agreement did not amount to a legal contract. According to Duke LJ the wife in this case had not provided consideration to make her husband’s promise enforceable. Warrington LJ relied on the absence of express or implied terms to back the wife’s claim. Atkin LJ held that although agreement and consideration could arguably have been found, this was an ordinary domestic arrangement between husband and wife. Mutual promises of this kind were not made by the parties with the necessary intention to be legally bound. Extract: The extract from the speech of Atkin LJ sets out the reasons why he decided agreements between married couples were outside the law of contract for lack of intention.

Atkin LJ The defence to this action on the alleged contract is that the

defendant, the husband, entered into no contract with his wife, and for the determination of that it is necessary to remember that there are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where [page 123] two parties agree to take a walk together, or where there is an offer and an acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract, and one of the most usual forms of agreement which does not constitute a contract appears to me to be the arrangements which are made between husband and wife. It is quite common, and it is the natural and inevitable result of the relationship of husband and wife, that the two spouses should make arrangements between themselves — agreements such as are in dispute in this action — agreements for allowances, by which the husband agrees that he will pay to his wife a certain sum of money, per week, or per month, or per year, to cover either her own expenses or the necessary expenses of the household and of the children of the marriage, and in which the wife promises either expressly or impliedly to apply the allowance for the purpose for which it is given. To my mind those agreements, or many of them, do not result in contracts at all, and they do not result in contracts even though there may be what as between other parties would constitute consideration for the agreement. … [T]hey are not contracts because the parties did not intend that they should be attended by legal consequences. To my mind it would be of the worst possible example to hold that agreements such as this resulted in legal obligations which could be enforced in the Courts. It would mean this, that when the husband makes his wife a promise to give her an allowance of 30s or £2 a week, whatever he can afford to give her, for the maintenance of the household and children, and she promises so to apply it, not only could she sue him for his failure in any week to supply the allowance, but he could sue her for non-performance of the obligation, express or implied, which she had undertaken upon her part. All I can say is that the small Courts of this country would have to be multiplied one hundredfold if these arrangements

were held to result in legal obligations. They are not sued upon, not because the parties are reluctant to enforce their legal rights when the agreement is broken, but because the parties, in the inception of the arrangement, never intended that they should be sued upon. Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts. The terms may be repudiated, varied or renewed as performance proceeds or as disagreements develop, and the principles of the common law … are such as find no place in the domestic code. … [I]t appears to me to be plainly established that the promise here was not intended by either party to be attended by legal consequences. I think the onus was upon [the wife], and [the wife] has not established any contract.

Comments 7.2.1 See Radan, Gooley, and Vickovich at 7.8–794, 7.12–7.13, and 7.17–7.18. 7.2.2 For a discussion of the continued relevance of Balfour v Balfour in the context of marriage, see M Freeman, ‘Contracting in the Haven: Balfour v Balfour Revisited’, [page 124] in R Halson (ed), Exploring the Boundaries of Contract, Dartmouth, Aldershot, 1996, pp 68–82. For a broader criticism of the principle in Balfour v Balfour, see S Hedley, ‘Keeping Contract in its Place — Balfour v Balfour and the Enforceability of Informal Agreements’ (1985) 5 Oxford Journal of Legal Studies 391.

REBUTTAL OF THE PRESUMPTION IN FAMILY, SOCIAL,

OR DOMESTIC AGREEMENTS 7.3C

Jones v Padavatton [1969] 2 All ER 616

Court: Court of Appeal in England Facts: Padavatton was a divorced woman employed at the Indian Embassy in Washington DC, where she lived with her son. In 1962 she agreed with Jones, her mother, that she should relocate to London and study law on the basis that Jones would pay her tuition fees and an allowance of £42 per month. There was a misunderstanding about the amount of the allowance, although the daughter accepted the smaller monthly amounts paid by her mother. Also, there was no clearly identifiable arrangement about the period of time for which the allowance was to be paid. During her stay in London, the daughter raised the issue of her accommodation. In response to this issue the mother and daughter agreed to vary their arrangement. Pursuant to this variation the mother purchased a large home, some of the rooms in which were then let out to tenants. The daughter inhabited the rest of the house rent-free. After the daughter remarried and had a falling out with her mother, the mother sought possession of the house. Her daughter counter-claimed for an amount of money she had spent on the house. Issues: The issues before the Court of Appeal were whether the presumption against contractual intention could be applied to the arrangements entered into between the mother and daughter, and whether a contract had on the facts been entered into between them. Decision: The Court of Appeal (Danckwerts, Salmon, and Fenton Atkinson LJJ) unanimously held in the mother’s favour. Danckwerts and Fenton Atkinson held that the arrangements were unenforceable because of the absence of contractual intention, objectively determined, on the part of the mother and daughter. Although Salmon LJ took a contrary view as to the presence of contractual intention, he held in favour of the mother on the ground that the dispute between the women related to the varied

arrangement about the occupation of the house. He held this arrangement to be too vague and uncertain to be enforceable. Extract: The extracts from the judgments of Danckwerts LJ and Salmon LJ show the differing views of the court on the issue of whether the 1962 arrangement between the mother and daughter was intended to create a legally enforceable contract.

[page 125]

Danckwerts LJ The precise terms of the arrangement between the mother and the daughter were difficult to discover completely. There is no doubt that the daughter gave consideration for a promise by her mother to provide maintenance at the rate of £42 per month so long as she was reading for the Bar in England by giving up her job and her other advantages in Washington, and by reading for the Bar. But various incidental matters appear never to have been thought out at all. There were no terms recorded in writing, no sort of businesslike statement of the parties’ respective obligations, not even of how long the mother was to go on paying if the studies were prolonged or unsuccessful. … The question therefore arises whether any binding legal contract was intended, or whether this was simply a family arrangement in which one member of the family relies on a promise given by another person and trusts that person to carry out the promise. But such an arrangement is not intended to create actionable legal rights. … Were the arrangements (such as they were) intended to produce legally binding agreements, or were they simply family arrangements depending for their fulfilment on good faith and trust, and not legally enforceable by legal proceedings? … Counsel for the daughter argued strenuously for the view that the parties intended to create legally binding contracts. He relied on the old case of Shadwell v Shadwell1 and Parker v Clark.2 Counsel for the mother argued

for the contrary view that there were no binding obligations, and that if there were they were too uncertain for the court to enforce. His standby was Balfour v Balfour.3 … Of course, there is no difficulty, if they so intend, in members of families entering into legally binding contracts in regard to family affairs. A competent equity draftsman would, if properly instructed, have no difficulty in drafting such a contract. But there is possibly in family affairs a presumption against such an intention (which, of course, can be rebutted). I would refer to Atkin LJ’s magnificent exposition in regard to such arrangements in Balfour v Balfour. There is no doubt that this case is a most difficult one, but I have reached a conclusion that the present case is one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid, binding agreements. Balfour v Balfour was a case of husband and wife, but there is no doubt that the same principles apply to dealings between other relations, such as father and son and daughter and mother. This, indeed, seems to me a compelling case. The mother and the daughter seem to have been on very good terms before 1967. The mother was arranging for a career for the daughter which she hoped would lead to success. This involved a visit to England in conditions which could not be wholly foreseen. What was required was an arrangement which was to be financed by the mother and was such as would be adaptable to circumstances, as it in fact was. The operation about the house was, in my view, not a completely fresh arrangement, [page 126] but an adaptation of the mother’s financial assistance to the daughter due to the situation which was found to exist in England. It was not a stiff contractual operation any more than the original arrangement.

Salmon LJ There is no dispute that the parties entered into some sort of arrangement. … Did the parties intend the arrangement to be legally binding? This question

has to be solved by applying what is sometimes (although perhaps unfortunately) called an objective test. The court has to consider what the parties said and wrote in the light of all the surrounding circumstances, and then decide whether the true inference is that the ordinary man and woman, speaking or writing thus in such circumstances, would have intended to create a legally binding agreement. Counsel for the mother has said, quite rightly, that as a rule when arrangements are made between close relations, for example, between husband and wife, parent and child or uncle and nephew in relation to an allowance, there is a presumption against an intention of creating any legal relationship. This is not a presumption of law, but of fact. It derives from experience of life and human nature which shows that in such circumstances men and women usually do not intend to create legal rights and obligations, but intend to rely solely on family ties of mutual trust and affection. … There may, however, be circumstances in which this presumption, like all other presumptions of fact, can be rebutted. … In the present case the learned county court judge … came to the conclusion that on these very special facts the true inference must be that the arrangement between the parties prior to the daughter’s leaving Washington were intended by both to have contractual force. On the facts as found by the learned county court judge this was entirely different from the ordinary case of a mother promising her daughter an allowance whilst the daughter read for the Bar, or a father promising his son an allowance at university if the son passed the necessary examinations to gain admission. The daughter here was 34 years of age in 1962. She had left Trinidad and settled in Washington as long ago as 1949. In Washington she had a comfortable flat and was employed as an assistant accountant in the Indian embassy at a salary of $500 a month (over £2,000 a year). This employment carried a pension. She had a son of seven years of age who was an American citizen, and had, of course, already begun his education. There were obviously solid reasons for her staying where she was. For some years prior to 1962, however, the mother, who lived in Trinidad, had been trying hard to persuade her to throw up all that she had achieved in Washington and go to London to read for the Bar. The mother would have been very proud to have a barrister for a daughter. She also thought that her plan was in the interest of the grandson, to whom she was much attached. She envisaged

that, after the daughter had been called to the Bar, she would practise in Trinidad and thereafter presumably she (the mother) would be able to see much more of the daughter than formerly. The daughter was naturally loath to leave Washington, and did not regard the mother’s suggestion as feasible. The mother, however, eventually persuaded the daughter to do as she wished by promising her that, if she threw up her excellent position in Washington and came to study for the Bar in England, she would pay her daughter an [page 127] allowance of $200 a month until she had completed her studies. The mother’s attorney in Trinidad wrote to the daughter to confirm this. I cannot think that either intended that if, after the daughter had been in London, say, for six months, the mother dishonoured her promise and left her daughter destitute, the daughter would have no legal redress. In the very special circumstances of this case, I consider that the true inference must be that neither the mother nor the daughter could have intended that the daughter should have no legal right to receive, and the mother no legal obligation to pay, the allowance of $200 a month. The point was made by counsel for the mother that the parties cannot have had a contractual intention since it would be unthinkable for the daughter to be able to sue the mother if the mother fell on hard times. I am afraid that I am not impressed by this point. The evidence which the learned county court judge accepted showed that the mother was a woman of some substance, and prior to the agreement had assured the daughter that there would be no difficulty in finding the money. The fact that, if contrary to everyone’s expectation the mother had lost her money, the daughter would have been unlikely to sue her throws no light on whether the parties had an intention to contract. The fact that a contracting party is in some circumstances unlikely to extract his pound of flesh does not mean that he has no right to it. … The next point made by counsel for the mother was that the arrangements between the mother and the daughter in 1962 were too uncertain to

constitute a binding contract. It is true that the mother said $200 a month without stipulating whether she meant West Indian or United States dollars. Obviously she meant West Indian dollars. The daughter says that she thought her mother meant United States dollars. This point does not, however, appear to have given rise to any difficulty. For two years from November 1962 until December 1964 the mother regularly paid her daughter £42, the equivalent of $(West Indian) 200, a month, and the daughter accepted this sum without demur. Then it is said on the mother’s behalf that the daughter’s obligations are not sufficiently stated. I think that they are plain, to leave Washington, with all that entailed, come to London and genuinely study for the Bar there. If the daughter threw up her studies for the Bar, maybe the mother could not have recovered damages, but she would have been relieved of any obligation to continue the allowance. Then again it is said that the duration of the agreement was not specified. No doubt, but I see no difficulty in implying the usual term that it was to last for a reasonable time. The parties cannot have contemplated that the daughter should go on studying for the Bar and draw the allowance until she was seventy, nor on the other hand that the mother could have discontinued the allowance if the daughter did not pass her examinations within, say, 18 months. The promise was to pay the allowance until the daughter’s studies were completed, and to my mind there was a clear implication that they were to be completed within a reasonable time. Studies are completed either by the student being called to the Bar or giving up the unequal struggle against the examiners. It may not be easy to decide, especially when there is such a paucity of evidence, what is a reasonable time. The daughter, however, was a well-educated intelligent woman capable of earning the equivalent of over [page 128] £2,000 a year in Washington. It is true that she had a young son to look after, and may well (as the learned judge thought) have been hampered to some extent by the worry of this litigation. But, making all allowance for these factors and any other distraction, I cannot think that a

reasonable time could possibly exceed five years from November 1962, the date when she began her studies.

Comment 7.3.1 See Radan, Gooley, and Vickovich at 7.15–7.16.

THE PRESUMPTION IN COMMERCIAL AGREEMENTS 7.4C

Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117

Court: House of Lords Facts: As part of a successful promotion, Esso offered a ‘free gift’ of a coin to every customer who purchased four gallons of petrol. The coins were of negligible value in themselves, but were popular because they featured the images of members of the English World Cup football squad. The Commissioners argued that Esso was in effect ‘selling’ the coins to its customers, despite using the term ‘free gift’. They claimed the transaction satisfied the statutory definition of a contract for sale of goods, being a contract by which goods are transferred in return for money consideration, and that Esso needed to pay a purchase tax under the relevant tax legislation because the coins had been ‘produced in quantity for general sale’. Issue: The issue before the House of Lords was whether there was a contract for sale of goods such as to attract a purchase tax. However, in deciding that question, their Lordships needed to address the issue of whether Esso and individual customers intended to enter into legal relations. Decision: The majority of the House of Lords (Lords Wilberforce, Simon of Glaisdale, and Russell of Killowen, and Viscount Dilhorne; Lord Fraser of Tullybelton dissenting) held the offer of a coin did not

amount to a contract for sale of goods. The consideration for the coins was not payment of money, but rather a collateral contract to buy petrol. On the question of whether the coins were given as gifts or under a contract, three of the majority Law Lords (Lords Wilberforce, Simon of Glaisdale, and Fraser of Tullybelton) decided there was an intention to create legal relations. Lord Russell and Viscount Dilhorne held the parties did not intend to be legally bound. Extract: The extracts below deal only with the issue of intention, not the tax matter. The speech of Viscount Dilhorne illustrates the argument that no intention could be found [page 129] on the facts, while the speeches of Lord Simon of Glaisdale and Lord Fraser of Tullybelton indicate the basis of the majority view on intention.

Viscount Dilhorne Was there any intention on the part of the garage proprietor and also on the part of the customer who bought four gallons, or multiples of that quantity, of petrol to enter into a legally binding contract in relation to a coin or coins? … True it is that Esso are engaged in business. True it is that they hope to promote the sale of their petrol, but it does not seem to me necessarily to follow or to be inferred that there was any intention on their part that their dealers should enter into legally binding contracts with regard to the coins; or any intention on the part of the dealers to enter into any such contract or any intention on the part of the purchaser of four gallons of petrol to do so. If on the facts of this case the conclusion is reached that there was any such intention on the part of the customer, of the dealer and of Esso, it would seem to exclude the possibility of any dealer ever making a free gift to any of his customers, however negligible its value, to promote his sales.

If what was described as being a gift which would be given if something was purchased was something of value to the purchaser, then it could readily be inferred that there was a common intention to enter into legal relations. But here, whatever the cost of production, it is clear that the coins were of little intrinsic value. I do not consider that the offer of a gift of a free coin is properly to be regarded as a business matter. … Nor do I see any reason to impute to every motorist who went to a garage where the posters were displayed to buy four gallons of petrol any intention to enter into a legally binding contract for the supply to him of a coin. On the acceptance of his offer to purchase four gallons there was no doubt a legally binding contract for the supply to him of that quantity of petrol, but I see again no reason to conclude that because such an offer was made by him, it must be held that, as the posters were displayed, his offer included an offer to take a coin. The gift of a coin might lead to a motorist returning to the garage to obtain another one, but I think the facts in this case negative any contractual intention on his part and on the part of the dealer as to the coin and suffice to rebut any presumption there may be to the contrary. If, however, there was any contract relating to the coin or coins, the consideration for the entry into that contract was not the payment of any money but the entry into a contract to purchase four gallons or multiples of that quantity of petrol, in which case the contract relating to the coin or coins cannot be regarded as a contract of sale.

Lord Simon of Glaisdale I am … not prepared to accept that the promotion material put out by Esso was not envisaged by them as creating legal relations between the garage proprietors who adopted it [page 130] and the motorists who yielded to its blandishments. In the first place, Esso and the garage proprietors put the material out for their commercial

advantage, and designed it to attract the custom of motorists. The whole transaction took place in a setting of business relations. In the second place, it seems to me in general undesirable to allow a commercial promoter to claim that what he has done is a mere puff, not intended to create legal relations.4 The coins may have been themselves of little intrinsic value; but all the evidence suggests that Esso contemplated that they would be attractive to motorists and that there would be a large commercial advantage to themselves from the scheme, an advantage in which the garage proprietors also would share.

Lord Fraser of Tullybelton The matter that is in my view of decisive importance is the wording on the posters which were displayed in the forecourts of Esso petrol retailers during the promotion scheme. The originals of these posters were large, 60 by 40 inches, and each poster was headed in large letters ‘Free World Cup Coins’. Below that was a picture either of one of the coins or of a group of the coins and below the picture on one poster were the words: ‘Collect the complete set. One coin given with every four gallons of petrol’, and on the other poster: ‘Collect the full set of thirty coins. One coin given when you buy four gallons of petrol.’ The feature of that wording, which is of special significance, is the correlation of one coin to every four gallons; a definite scale of issue, or ration, was thus promised, and the plain inference is that any motorist who bought four gallons of petrol would have a right also to receive a coin. It is as if a baker had a poster in his shop window promising that any person who bought a dozen buns would be given one extra bun free of charge to make up a ‘bakers’ dozen’. Standing that promise by the retailer, it is in my opinion impossible to avoid the inference that when a motorist ordered some petrol he was offering to enter into a contract on the terms advertised by the retailer, and therefore that when his offer was accepted he had a contractual right to one coin with every four gallons of petrol. … Various reasons have been suggested for taking the contrary view, and the one that appears to me to be the strongest is also the simplest, namely that the poster and advertisements repeatedly use the words ‘gift’, ‘given’ and ‘free’. It is said that the use of these words, together with the small value of the coins and the fact that the price of petrol was not increased during the

promotion period shows that the coins were truly given away. But the purpose of the promotion scheme was to attract motorists, and perhaps their children, and to persuade them to buy Esso rather than some other brand of petrol, and it cannot be right that a motorist who had been persuaded to buy four gallons of Esso should be liable to be met at the end of the transaction with a refusal to give him a coin.

[page 131]

Comment 7.4.1 See Radan, Gooley, and Vickovich at 7.37.

THE ERMOGENOUS APPROACH TO INTENTION 7.5C

Ermogenous v Greek Orthodox Community of South Australia Inc (2002) 209 CLR 95

Court: High Court of Australia Facts: The Greek Orthodox Community of South Australia Inc (the Community) was a lay organisation that ran a number of cultural, social, sporting, and religious activities in South Australia. It had engaged priests in the past to conduct religious services and cater to the Community’s spiritual needs. At one point, wishing to assert its independence from the Archbishop in Sydney, it arranged for Ermogenous to come from the United States to take up the role of Archbishop in a future autonomous Greek Orthodox church in Australia. The parties discussed basic terms and conditions, including accommodation, remuneration, and the nature of the role. It was agreed that Ermogenous was not to interfere in matters of real estate and finances, and the Community was not to interfere in matters of spiritual administration. The autonomous church was registered, but

never received nationwide support as intended. Ermogenous remained in his role as Archbishop, ministering to the needs of the Community’s members for over two decades. On occasions the Community interfered in matters of spiritual administration, such as intervening to curb Ermogenous’s disciplining of two bishops and vetoing an intended synod meeting. The Community continued to pay Ermogenous, even when on leave, and deduct PAYE tax. When he retired after some years of often strained relations with the Community’s management, Ermogenous requested payment of accrued employee entitlements. The Community argued he could not be treated as an employee because he was the holder of an ecclesiastical office. Issues: The issues before the High Court included whether ministers of religion could be employed by their religious bodies and, if so, whether Ermogenous and the Community had in fact demonstrated the requisite intention to enter into a contract of employment. If a contract of employment existed, Ermogenous was entitled to be paid the accrued employee entitlements. Decision: The High Court (Gaudron, McHugh, Hayne, Callinan, and Kirby JJ) unanimously held that there was a contract of employment and that Ermogenous was entitled to his accrued employee entitlements. Extract: The extract from the joint judgment of the majority (Kirby J delivered a separate but concurring judgment) reflects the High Court’s view on the role of the presumptions in determining the existence of contractual intention.

[page 132]

Gaudron, McHugh, Hayne, and Callinan JJ ‘It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty’.5 To be a legally enforceable duty there must, of course, be identifiable parties to the

arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet ‘[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts’.6 Because the inquiry about this last aspect may take account of the subjectmatter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances,7 not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the ‘intention to create contractual relations’ requires an objective assessment of the state of affairs between the parties8 (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened.9 It is not a search for the uncommunicated subjective motives or intentions of the parties. In this context of intention to create legal relations there is frequent reference to ‘presumptions’. It is said that it may be presumed that there are some ‘family arrangements’ which are not intended to give rise to legal obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition.

[page 133] More importantly, the use of the language of presumptions may lead, as it did in this case, to treating one proposition (that an intention to create legal relations is not to be presumed) as equivalent to another, different proposition (that generally, or usually, or it is to be presumed that, an arrangement about remuneration of a minister of religion will not give rise to legally enforceable obligations). References to ‘the usual non-contractual status of a priest or minister’ and factors which ‘generally militate against’ a finding of intention to create legal relations10 illustrate the point. The latter proposition may then be understood as suggesting, in some way, that proof to the contrary is to be seen as particularly difficult and yet offer no guidance at all about how it may be done. Especially is that so when the chief factor said to justify the proposition that an intention to create legal relations must be proved (the essentially spiritual role of a minister of religion) is then put forward as the principal reason not to find that intention in a particular case, and any other matters suggesting that there may be an intention to create legal relations are treated as dealing only with ‘collateral’ or ‘peripheral’ aspects of the relationship between the parties.11 In practice, the latter proposition may rapidly ossify into a rule of law, that there cannot be a contract of employment of a minister of religion, distorting the proper application of basic principles of the law of contract. … [R]eference must also be made to the statements, found in several cases, that the relationship between a minister of religion and a church is pre-eminently or even entirely spiritual, not contractual.12 … That the relationship between a minister of religion and the relevant religious body or group in which, and to which, he or she ministers is, at its root, concerned with matters spiritual is self-evidently true. That the minister’s conduct as minister will at least be informed, if not wholly governed, by consideration of matters spiritual is likewise self-evident. It by no means follows, however, that it is impossible that the relationship between the minister and the body or group which seeks or receives that ministry will be governed by a contract, and the respondent in this appeal did not seek to advance any such absolute proposition. Rather, the respondent advanced the more limited proposition, adopted by [the

majority in the Supreme Court] that an intention to enter contractual relations is not to be presumed where the arrangement concerns the engagement of a minister of religion but must affirmatively be proved.13 Nevertheless, it is as well to identify some aspects of the more absolute proposition earlier identified — that the relationship between minister and church is pre-eminently or even entirely spiritual because, in the end, the conclusion at which the majority of the Full Court arrived, was that the only arrangement or relationship which the appellant had was with a church not the respondent, and was a spiritual, not a contractual relationship. First, although the proposition that the relationship between minister and church is pre-eminently or even entirely spiritual is couched in apparently absolute terms, it has been [page 134] recognised that there are aspects of that relationship which may give rise to legally enforceable rights and duties. … Secondly, the ‘essentially spiritual’ character of the relationship may take on a different character when one of the parties to the arrangement (the putative employer) is not itself a spiritual body but is, as Staughton LJ said in Coker,14 ‘a school, or a duke, or an airport authority’ or, we would add, an incorporated body having the characteristics of the present respondent. To say that a minister of religion serves God and those to whom he or she ministers may be right, but that is a description of the minister’s spiritual duties. It leaves open the possibility that the minister has been engaged to do this under a contract of employment. … We do not accept that the Industrial Magistrate failed to consider the question of intention to create legal relations. The Industrial Magistrate described the issue as being ‘Can a minister of religion be in law an employee?’ and he dealt at length with the principal cases upon which the respondent relied both in this Court and in the Full Court of the Supreme Court. It seems that, at trial, the respondent advanced an argument framed in absolute terms. The Industrial Magistrate recorded it as being that ‘a minister of religion — any religion — cannot in law be considered an

employee of any other person or legal entity’. This proposition was rejected. But, read as a whole, the reasons of the Industrial Magistrate reveal that whether the arrangement which he had found to have been made between the appellant and the respondent was intended by them to be subject to the adjudication of the courts was a question at the centre of his consideration. No less importantly, the Industrial Magistrate expressly recognised that, in each of the several cases to which the respondent had referred in support of its submissions, there had been: a close consideration of the particular facts of the matter, including the charters, statutes and documents of fundamental belief of each creed considered, the documented position of the clergy in respect of each of the churches mentioned, and the special provisions of statute which govern the actual situation in the law of that particular church.15 He undertook a similarly close examination of the evidence that had been called at the trial of this matter about those subjects. That is, he examined, with care, all of the objective circumstances which bore on whether the parties intended to make a contract, as distinct from an arrangement binding only in honour. The Industrial Magistrate did not make the error which the majority in the Full Court of the Supreme Court attributed to him. Even if the Industrial Magistrate did make that error, the inference which the Full Court drew about the absence of an intention to create legal relations was an inference that was not open on the facts that had been found at trial.

[page 135]

Comments 7.5.1 See Radan, Gooley, and Vickovich at 7.11 and 7.38–7.59. 7.5.2 In Percy v Board of National Mission of the Church of Scotland [2006] 2 AC 28, Percy, an ordained female minister of the Church of

Scotland, alleged that she had been discriminated against in violation of the Sex Discrimination Act 1975 (UK). In order to bring the complaint, Percy had to establish that her engagement as a minister was pursuant to a contract of employment. In relation to the issue of intention to create legal relations, Lord Nicholls of Birkenhead, at 40–1, said: There are indeed many arrangements or happenings in church matters where, viewed objectively on ordinary principles, the parties cannot be taken to have intended to enter into a legally-binding contract. The matters relied upon by Mr Parfitt in President of the Methodist Conference v Parfitt [1984] QB 368 are a good example of this. The nature of the lifelong relationship between the Methodist Church and a minister, the fact that he could not unilaterally resign from the ministry, the nature of his stipend, and so forth, all these matters made it impossible to suppose that any legally-binding contract came into being between a newlyordained minister and the Methodist Church when he was received into full connection. Similarly with the church’s book of rules relied on by the Reverend Colin Davies in Davies v Presbyterian Church of Wales [1986] 1 WLR 323. Then the rebuttable presumption enunciated by the Lord President in the present case, following Mummery LJ’s statements of principle in Diocese of Southwark v Coker [1998] ICR 140, 147, may have a place. Without more, the nature of the mutual obligations, their breadth and looseness, and the circumstances in which they were undertaken, point away from a legally-binding relationship. But this principle should not be carried too far. It cannot be carried into arrangements which on their face are to be expected to give rise to legally-binding obligations. The offer and acceptance of a church post for a specific period, with specific provision for the appointee’s duties and remuneration and travelling expenses and holidays and accommodation, seems to me to fall firmly within this latter category.

Further, in this regard there seems to be no cogent reason today to draw a distinction between a post whose duties are primarily religious and a post within the church where this is not so. In President of the Methodist Conference v Parfitt [at 376], Dillon LJ noted that a binding contract of service can be made between a minister and his church. This was echoed by Lord Templeman … in Davies v Presbyterian Church of Wales [at 329]. Lord Templeman said it is possible for a man to be employed as a servant or as an independent contractor to carry out duties which are exclusively spiritual. The context in which these issues normally arise today is statutory protection for employees. Given this context, in my view it is time to recognise that employment arrangements between a church and its ministers should not [page 136] lightly be taken as intended to have no legal effect and, in consequence, its ministers denied this protection. 7.5.3

7.5.4

For a discussion of Percy v Board of National Mission of the Church of Scotland and Ermogenous v Greek Orthodox Community of South Australia Inc in the context of the status of clergy and whether they perform their functions pursuant to a contract of employment, see G Blake SC, ‘Serving God and the Church: Clergy, Employment and Discrimination’ (2006) 80 Australian Law Journal 571. For a discussion of the element of intention in the context of decisions involving clergy, see I Vickovich, ‘The Modern Animus Contrahendi; Focusing on Intention Through a “Contemporary Lens”’ (2011) 13 Flinders Law Journal 95. The reasoning of the High Court in Ermogenous v Greek Orthodox Community of South Australia Inc has influenced superior court decisions in cases outside the context of faith work. For example, in Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 37, the Full Court of

the Federal Court stated, at 241, that: Ermogenous rejected the use of presumptions as a basis for ascertaining whether parties intended to enter into contractual relations … the question in every case [is] whether an objective assessment of the state of affairs between the parties, in the context in which they [are] dealing evince[s] an intention to create contractual relations. Similarly, the United Kingdom Supreme Court, in Preston v President of the Methodist Conference [2013] 2 AC 163 at 173; [2013] 4 All ER 477 at 483, held that in the faith worker cases the ‘primary considerations’ for locating intention, rather than the presumptions, are: … the manner in which the minister was engaged, and the character of the rules or terms governing his or her service. … [T]hese documents and any other admissible evidence on the parties’ intentions fall to be construed against their factual background.

7.6C

Ashton v Pratt (2015) 88 NSWLR 281

Court: Court of Appeal of the Supreme Court of New South Wales Facts: Pratt was one of Australia’s wealthiest business people and Ashton was an escort with whom he had a relationship. Conversations between them, alleged by Ashton to have taken place in November 2003, were to the effect that in consideration for her not returning to the escort industry but providing him with services as his mistress, Pratt promised to settle $2.5 million on trust for each of her children, pay her an annual allowance of $500,000, an amount of $36,000 for rental accommodation, and $30,000 per annum for business expenses. After Pratt died Ashton signed a settlement with his estate for an amount of money, but she later commenced proceedings against his

[page 137] estate, seeking to set aside the settlement and claim the moneys under an alleged contract with Pratt. The primary judge accepted Ashton’s uncorroborated testimony about the conversations, but also held that Pratt and Ashton did not intend to create legal relations. Even if a contract had been formed, the trial judge found it would have been void as against public policy. It was also held that estoppel did not apply to preclude Pratt’s estate from denying that the conversations were legally binding. Finally, the trial judge held that any binding obligations were subsequently released by the settlement. Issue: The issue before the appeal court was, inter alia, whether the November 2003 conversations gave rise to a binding contract between Ashton and Pratt. Decision: The Court of Appeal (Bathurst CJ, McColl and Meagher JJA) unanimously dismissed Ashton’s appeal. It was held that the parties did not intend to create legal relations and, even if they did, any contract was void for uncertainty. It was also held that a social or family arrangement, rather than raising any presumption regarding the parties’ intention to enter into a contract, simply forms part of the circumstances from which the existence of a contract could be determined. Extracts: The extracts from the judgment of Bathurst CJ are directed to the matters of fact that were taken into account as indicators of the absence of intention to create legal relations.

Bathurst CJ In Ermogenous,16 the High Court held … that whether the parties intended to create legal relations required an objective assessment of the state of affairs between them. In that case, the High Court doubted … the validity of the use of a presumption that ‘family arrangements’ were not intended to give rise to

legal obligations. Subsequently, the Full Court of the Federal Court in Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs17 concluded … that the High Court had rejected the use of presumptions as a basis of determining whether parties had entered into contractual relations. By contrast, in Sion v NSW Trustee & Guardian18 (Sion), Emmett JA, with whom Basten and Barrett JJA agreed, stated … that as a matter of known experience, when family members make a promise to each other it is unlikely they intend it to be legally binding and the vaguer the language of the arrangement and the greater its informality, the more difficult it will be to rebut the presumption. Ms Ashton contended that the primary judge erred in applying the presumption. It is correct that his Honour accepted the presumption applied, but he stated that in any event he was [page 138] satisfied that the parties did not intend to make a contract. For the reasons which follow, he was correct in reaching that conclusion. Notwithstanding what was said by this Court in Sion, in my opinion the effect of the decision of the High Court in Ermogenous was that in considering the issue recourse should not be had to any presumption concerning the contractual or non-contractual effects of family arrangements. That does not mean that the relationship of the parties and the circumstances in which the arrangement was entered into are irrelevant to the question. To the contrary, these factors form part of the surrounding circumstances from which it will be determined whether or not a contract came into existence. In the present case, the conversations took place after Ms Ashton and Mr Pratt had resumed sexual relations and Mr Pratt had already offered to support her in her business and paid her money. The conversations said to give rise to legal relations started with a request by Mr Pratt for Ms Ashton to spend more money on haute couture. Thereafter, when Ms Ashton said she was thinking about going back to the

escort business, he said he was prepared to financially support her so she did not need to. In that context, he offered to establish the trust. It should be noted that at least this portion of the conversations was not framed in terms of ‘if you agree not to go back into the escort business I will establish the trust’. Rather, the thrust of the conversation was ‘I’ll help you by establishing the trust so you do not have to go back into the escort business.’ Even ignoring the informality, this does not seem to me to be the language of a legally binding contract. The conversations then proceeded with Mr Pratt asking Ms Ashton to forget about the escort business and offering to help her in her business venture. Once again it was not framed in terms of ‘I will support the business venture if you agree not to return to the escort business’. The conversations then continued with Mr Pratt inquiring as to the amount of money Ms Ashton would need to support herself. Ms Ashton responded that she would need income if she did not go into the escort business. In that context the offer of $500,000 was made. As part of that conversation Mr Pratt said ‘I don’t want you to work in that industry ever again. I want you to only concentrate on my needs and wants’, and Ms Ashton replied ‘That’s fine I wouldn’t complain’. This is the closest the conversations came to the language of contract. Undoubtedly it is correct that formal language of offer and acceptance is not necessary to constitute a contract.19 However, it is relevant that with the exception of that portion of the conversation to which I have referred … the language was not cast in the language of obligation. The obligations of Ms Ashton in the contract, as pleaded, were that she would cease providing escort services to other individuals and become Mr Pratt’s mistress. The nature of these promises tells against them having contractual effect. The conversations themselves made [page 139] no reference to Ms Ashton becoming Mr Pratt’s mistress as distinct from requesting her to concentrate on his needs and wants.

Although it may be readily inferred from the context in which the conversations took place that it was intended that Ms Ashton would occupy a position which could be described as Mr Pratt’s mistress, apart from concentrating on Mr Pratt’s needs and wants there is no delineation of the extent of Ms Ashton’s obligations. There was no evidence to suggest that the position of mistress imposes any particular obligation on a person occupying that position. Reasonable persons would not expect that question to be determined by a court. The difficulty is highlighted by the debate which took place at the hearing as to whether Ms Ashton was to provide sexual services to Mr Pratt on an exclusive basis. The November conversations are silent on that issue. However, in cross-examination Ms Ashton gave [answers that were equivocal]. … [This] highlights the difficulties of ascertaining what the obligations to be undertaken by Ms Ashton were. Similarly, it is difficult to see how these obligations could be enforced. The parties accepted the remedy of specific performance or injunction would not be available and it was not suggested the measure of damages would be the expense involved in Mr Pratt obtaining a new mistress. At one stage damages for disappointment were suggested but no indication was given as to how such damages would be assessed. The duration of the agreement is not specified. It was suggested in argument that this could be overcome by the implication of a reasonable time. However, there is no external standard by which a reasonable time could be measured.20 Further, neither the terms of the trust nor the time at which it was to be created were spelt out. Whilst it is true that it could be implied that the trust was to be created within a reasonable time and some of the obligations of the trustee and his or her powers could be imposed by both the general law and by statute, the identity of the trustee, something crucial to the existence of the trust, was not stated nor was the time at which the beneficiaries would be entitled to the trust funds. The statement ‘at a mature age’ may be able to be interpreted as upon reaching adulthood but even if it was, there is no basis to ascertain whether the interests of the children were contingent on them obtaining that age. If the agreement was intended to be enforced

by a court it would have been expected that these matters would have been dealt with. There is a more fundamental problem so far as the trust is concerned. The promise to create the trust was not said to be conditional on the performance by Ms Ashton of any services and presumably it was envisaged as arising immediately upon the mistress relationship commencing. Objectively speaking it would be surprising if Mr Pratt intended to legally bind himself to expend $5 million in these circumstances. Further, no attempt was made to document the transaction. Senior counsel for Ms Ashton said that it was consistent with an illicit transaction that the parties would not consult the [page 140] family solicitor. So much may be accepted. However, no doubt there were many lawyers not associated with the Pratt family who would have been in a position to document the transaction. I do not think that the events which took place after the November conversations provide much assistance in dealing with the matter. Whilst it is correct that there was no evidence that anything was done to set up the trust and the payments made did not conform to the terms of the agreement, Mr Pratt and Ms Ashton entered into (or at least continued) their relationship. Further, although Ms Ashton’s initial request for money was not on the basis that Mr Pratt had bound himself in the terms of the November conversations, she did make reference to at least some of the promises in her initial request as she did in the subsequent conversations with [a Pratt associate]. Having regard to the matters to which I have referred above, I do not think that the trial judge erred in concluding that the parties did not intend to create legal relations. In particular the nature of the arrangement, it’s [sic] imprecision in the areas to which I have referred and the inherent improbability that a person in the position of Mr Pratt would bind himself to make significant payments in consideration of a promise that was

essentially unenforceable, lead in my view to the conclusion reached by the primary judge. Further, in my opinion, in the present case, if there was an intention to create legal relations, the contract was void for uncertainty. I recognise courts will strain to give effect to agreements reached between parties, particularly in circumstances where the obligations have been partly performed. … However, in my opinion, the contract in the present case is uncertain or incomplete in a number of essential elements. I have referred above to the fact that the duties of Ms Ashton, as Mr Pratt’s mistress, are not specified, the duration of the arrangement is uncertain and there is a failure to identify the trustee or the vesting date of the trust. These are not matters that can be resolved by a court implying terms of reasonableness. It follows that no binding agreement of the nature of that pleaded was entered into.

Comment 7.6.1 See Radan, Gooley, and Vickovich at 7.50.

1.

(1860) 142 ER 62.

2. 3.

[1960] 1 All ER 93. [1919] 2 KB 571.

4. 5.

cf Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424.

6. 7.

South Australia v The Commonwealth (1962) 108 CLR 130 at 154. South Australia v The Commonwealth (1962) 108 CLR 130 at 154; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 367.

8.

Masters v Cameron (1954) 91 CLR 353 at 362; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548–9. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348–53; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289.

9. 10. 11.

cf Greek Orthodox Community of SA Inc v Ermogenous (2000) 77 SASR 523 at 576. Greek Orthodox Community of SA Inc v Ermogenous (2000) 77 SASR 523 at 576.

12.

Rogers v Booth [1937] 2 All ER 751 at 754; Lewery v Salvation Army in Canada (1993) 104 DLR (4th) 449 at 453.

13.

Greek Orthodox Community of SA Inc v Ermogenous (2000) 77 SASR 523 at 524, 576, 584.

14. 15.

Diocese of Southwark v Coker [1998] ICR 140 at 150. Ermogenous v Greek Orthodox Community of SA Inc (1997) 64 SAIR 622 at 734.

16. 17.

Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95. (2012) 289 ALR 237.

18. 19.

[2013] NSWCA 337. See the discussion by Ormiston J in Vroon BV v Foster’s Brewing Group Ltd [1994] VR 32 at 79.

20.

See Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 137 and 156.

[page 141]

8 THE REQUIREMENT OF WRITING

INTRODUCTION 8.1 This chapter deals with the statutory requirement that contracts dealing with the sale of land or an interest in land have to be evidenced in writing. Although there has never been a general requirement at common law or under statute that contracts need to be written, there are two generally accepted exceptions. One is that formal contracts (such as deeds) must comply with specified writing requirements mandated by statute. The other is that ever since the seminal Statute of Frauds (UK) in 1677, contracts for the sale or disposition of land or an interest in land must be evidenced in writing — that is, these agreements will not be enforceable unless they are fully in writing or there is sufficient written evidence of information and terms that are prescribed by statute. In New South Wales the relevant statutory provision is s 54A of the Conveyancing Act 1919 (NSW).1 This provision is replicated in other Australian jurisdictions. The primary requirement that the contract must be evidenced by a ‘memorandum or note’ is discussed in Pirie v Saunders (1961) 104 CLR 149 (see 8.2C). In broad terms, the legislation says that agreements of this kind will not be enforced unless they are evidenced by a note or memorandum that is signed by the ‘party to be charged’, being the party against whom the contract is to be enforced, or their agent. This means that any oral agreements for sale of land or interest in land must be backed up by sufficient written evidence to be enforceable. Courts have interpreted this provision to include the essential terms of the agreement, meaning that the note or memorandum must as a

minimum contain a sufficiently clear indication of the parties, the property, and the price. Generally, non-compliance with the legislation renders the contract unenforceable. However, courts exercising equitable jurisdiction have in some circumstances ordered oral agreements for sale of land to be enforced where the statutory requirements have not been met. The equitable jurisdiction of the courts in this regard is recognised in s 54A(2) of the Conveyancing Act 1919 (NSW). For an alleged oral agreement of this kind to be enforceable, evidence of ‘part performance’ of the oral agreement is required. Equity will recognise acts in part performance of the oral agreement, instead of the writing requirements, as sufficient evidence of an enforceable contract. However, the acts must be performed by the party seeking [page 142] to enforce the contract, they must be ‘authorised’ by the oral agreement, and they must be unequivocally referable to a contract of the general nature of that agreement. The question of whether the payment of money, in the absence of acts in relation to the land, is a sufficient act of part performance is discussed in Khoury v Khouri (2006) 66 NSWLR 241 (see 8.3C).

THE REQUIREMENT OF A WRITTEN MEMORANDUM OR NOTE 8.2C

Pirie v Saunders (1961) 104 CLR 149

Court: High Court of Australia Facts: Saunders brought an action for damages for breach of a lease of commercial premises in Sylvania Heights against Pirie and Cripps. Saunders claimed that handwritten notes prepared by Hargraves (the solicitor for Pirie and Cripps) setting out instructions to prepare such a lease constituted a sufficient note or memorandum that satisfied the statutory requirement of writing in relation to the sale of land or

interests in land — in this case, s 54A of the Conveyancing Act 1919 (NSW). The notes described the property as ‘Lot B Princes Highway, Sylvania Heights’ and set out the term of the lease and rent to be paid. However, the notes did not indicate when the lease was to commence. The notes also contemplated that further terms would be formulated. Pirie and Cripps rejected Saunders’ claim. Issue: The issue before the High Court was whether the solicitor’s notes constituted a written note or memorandum of an agreement in relation to a lease that was sufficient to satisfy the requirement of s 54A. Decision: The High Court (Dixon CJ, Fullagar, Kitto, Taylor, and Menzies JJ) overruled the Full Court in New South Wales and unanimously held that the solicitor’s notes did not satisfy the requirements of s 54A and that there was no enforceable lease between the parties to the litigation. Extract: The extract from the court’s joint judgment discusses the requirement of a written note or memorandum in the context of s 54A.

The Court In these circumstances the Full Court, by majority, took the view that the solicitor’s notes of his instructions were capable of being regarded as a sufficient note or memorandum of an earlier concluded agreement. This view was based upon the so-called ‘authenticated signature fiction’ by which the majority meant ‘that if the name of the party to be charged (not being a signature in the ordinary sense of the word) is placed on the document said to constitute the written memorandum of the contract, it is to be treated as a signature for the purposes of the statute if such party expressly or impliedly indicates that he recognizes the writing as being an authenticated expression of the contract’. But since they considered that the jury should have been asked to determine as a question of fact whether what took place when Cripps gave instructions to Hargraves ‘amounted to an authentication’ of the appellants’ ‘signatures’ they directed that there

should be a new trial. Possibly their Honours intended to limit the new trial to this issue but the formal order is in general terms. [page 143] With respect to those members of the Full Court who thought otherwise we are of the opinion that their Honours’ decision pushes too far the principle applied in Leeman v Stock2 and the earlier cases referred to in Neill v Heavens.3 The principle applied in those cases can, we think, have no application to any document which is not in some way or other recognizable as a note or memorandum of a concluded agreement. We do not mean by this that it is necessary that the written note must always appear to have been made after the making of the contract for it is clear that a written proposal or offer may by its subsequent acceptance become by the conduct of the parties recognizable as a sufficient note or memorandum of the resulting contract. But this is not such a case. Here there is an allegation of a prior concluded contract and the solicitor’s notes are said to constitute a note or memorandum of this contract. But they purport to be and are nothing more or less than a brief notation of his instructions for the preparation of a draft lease for submission to [Saunders’] solicitor. Neither the existence of the document nor its contents are indicative of the existence of any binding contract. Perhaps, in other words, it may be said that the enumerated particulars do not appear as a note or memorandum of a subsisting contract as distinct from bare instructions for the preparation of a formal lease. Both the document and its contents are quite consistent with the hypothesis that the parties had not made any prior binding contract and that their rights and obligations were not to be effected until the execution of a memorandum of lease in the form which, after discussion, it should finally take. That being so it in no way recognizes the existence of any binding contract and cannot therefore be regarded as a note or memorandum of any such contract.4 In these circumstances it is not of much consequence to enter upon a discussion concerning the view expressed by the majority of the Full Court that … Cripps ‘stood by’ whilst Hargraves noted his instructions and that these circumstances ‘afforded evidence that he was impliedly recognizing

the writing as an authentic record of the prior oral bargain with [Saunders]’. But since there is nothing in the evidence to suggest that Cripps had any knowledge of what was written down, it seems clear that no inference adverse to [Pirie and Cripps] can be based on the so-called ‘standing by’. Moreover even if Cripps can be said to have ‘stood by’ there is no room for the inference that he impliedly recognized the writing as an authentic record of any prior oral bargain. Indeed, both the character and contents of the document and the circumstances in which it was composed tell conclusively against any such inference. We should add also that the nature of the document was such as to render any inquiry concerning the solicitor’s authority to make it quite inappropriate. Finally, even if these objections are not properly founded, it will be seen upon examination that there are several reasons why the document could not be regarded as a sufficient note or memorandum. In the first place it does not specify the property which is to be leased beyond describing it as ‘part of Lot B, Princes Highway, Sylvania Heights’. This alone is, we should think, a fatal objection. Secondly, it is clear that the document does not contain all the terms of the proposed lease for it contemplates the formulation of special conditions after ascertainment of the requirements of the Board of Health. Again, the agreement for [page 144] breach of which [Saunders] sought damages was an agreement in the terms alleged in the declaration and the lease the subject of the alleged agreement was to contain, in addition to the matters specified in the declaration, ‘all the usual and proper covenants’. But it is reasonably clear from the immediately following allegation in the declaration that ‘the said lease was prepared by [Pirie’s and Cripps’] solicitor and all covenants were agreed to by [Saunders] and [Pirie and Cripps]’, and from succeeding allegations, that the substance of the [Saunders’] case was that there had been a breach of an agreement to grant a lease in the form which the final engrossment took. That being so it is clear that, even if the solicitor’s notes can be regarded as a note or memorandum of an agreement between the parties, it is quite insufficient to support the agreement sued upon.

Comment 8.2.1 See Radan, Gooley, and Vickovich at 8.13–8.18.

THE PAYMENT OF MONEY AND THE DOCTRINE OF PART PERFORMANCE 8.3C

Khoury v Khouri (2006) 66 NSWLR 241

Court: Court of Appeal in New South Wales Facts: In 1988 the siblings Marina and Peter Khoury purchased a house in Bass Hill with a loan that was secured by a mortgage over the property in favour of the Commonwealth Bank. In 1992 Peter orally agreed to hold his share in the house on trust for his brother, Bechara Khouri, and to transfer that share to Bechara when called upon to do so. In return Bechara agreed to pay Peter $30,000 and to meet Peter’s share of the loan repayments to the Commonwealth Bank. Bechara paid the $30,000 as agreed. About the same time, Marina agreed to transfer her share of the house to a senior clergyman, Bishop Gibran, who was a family friend. In return Bishop Gibran paid Marina $70,000 and agreed to take over responsibility for her share of the loan repayments to the Commonwealth Bank. Shortly after this agreement Bechara agreed with Bishop Gibran to pay $70,000 to the bishop, and in return the bishop agreed to make repayments of the loan to the Commonwealth Bank that Bechara had agreed to make pursuant to his earlier oral agreement with Peter. Bechara made the payment to the bishop, who then made payments over the ensuing years in reduction of the loan to the Commonwealth Bank. In 1996 Marina and her husband borrowed money from the Arab Bank. Part of the loan was used to pay the amount then outstanding on the loan to the Commonwealth Bank. The other part of the loan was used to re-purchase the share of the house she had earlier sold to Bishop Gibran. The loan from the Arab

Bank was secured by a mortgage over the Bass Hill property, with Peter acting as a guarantor on the loan. In 2002 Bechara demanded that his share of the house be transferred to him by Peter. [page 145] Issue: The issue before the Court of Appeal was whether Bechara’s payments of $30,000 to Peter and $70,000 to Bishop Gibran were sufficient acts of part performance upon which it could ground an order for specific performance in favour of Bechara. Decision: The Court of Appeal (Handley, Hodgson, and Bryson JJA) unanimously held that the payments of money by Bechara were not sufficient acts of part performance. Extract: The extract from the judgment of Bryson JA, who gave the main judgment in this case, discusses the requirements of the doctrine of part performance and, in particular, the extent to which payments of money can qualify as acts of part performance.

Bryson JA Case law … shows that part performance was treated as a ground for specific performance in 1686, 10 years after the enactment of Statute of Frauds,5 and was relied on in several cases early in the 18th Century. … The judicial approach to the meaning and effect of the Statute of Frauds may well have been influenced by the recital with which it opens: ‘For prevention of many fraudulent practices, which are commonly endeavoured to be upheld by perjury and subornation of perjury; (2) be it enacted. …’ This recital establishes the purpose of the Statute clearly, and could support the view that if evidence shows that the transaction is genuine in some other way than by writing, the Statute was not intended to apply to it. If this was part of the reasoning of seventeenth-century Chancery judges, they are not known to have articulated it. In Last v Rosenfeld Hope J gave this account, which has the evident approval of the High Court in Theodore v Mistford Pty Ltd:6

No sooner had the Statute of Frauds been enacted in 1677 than the courts set about relieving persons of its effect in cases where it was thought that the legislation could not have been intended to apply. In general terms, it was said that the courts would not allow the Statute of Frauds to be made an instrument of fraud, and that it did not prevent the proof of the fraud. No doubt, as was said by Selborne LC in Maddison v Alderson7 in relation to one of the principles that was developed in this way, namely, the doctrine of part performance, this summary way of stating the principle, however true it may be when properly understood, is not an adequate explanation, either of the precise grounds, or of the established limits, of the relevant doctrine. The general approach indicated by this summary statement did, however, spread into a number of fields where a statute requires writing. …8 [page 146] The modern foundation of the doctrine is the decision of the House of Lords in Maddison v Alderson. The speech of Lord Selborne LC has become a starting point for later consideration. His Lordship’s speech includes these observations: … That equity has been stated by high authority to rest upon the principle of fraud: ‘Courts of Equity will not permit the statute to be made an instrument of fraud’. By this it cannot be meant that equity will relieve against a public statute of general policy in cases admitted to fall within it; and I agree … that this summary way of stating the principle (however true it may be when properly understood) is not an adequate explanation, either of the precise grounds, or of the established limits, of the equitable doctrine of part performance. In a suit founded on such part performance, the defendant is really ‘charged’ upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself. If such equities were excluded, injustice of a kind which the statute cannot be thought to have had in contemplation would follow. Let the case be supposed

of a parol contract to sell land, completely performed on both sides, as to everything except conveyance; the whole purchase-money paid; the purchaser put into possession; expenditure by him (say in costly buildings) upon the property; leases granted by him to tenants. The contract is not a nullity; there is nothing in the statute to estop any Court which may have to exercise jurisdiction in the matter from inquiring into and taking notice of the truth of the facts. All the acts done must be referred to the actual contract, which is the measure and test of their legal and equitable character and consequences. … The line may not always be capable of being so clearly drawn … but it is not arbitrary or unreasonable to hold that when the statute says that no action is to be brought to charge any person upon a contract concerning land, it has in view the simple case in which he is charged upon the contract only, and not that in which there are equities resulting from res gestae subsequent to and arising out of the contract. So long as the connection of those res gestae with the alleged contract does not depend upon mere parol testimony, but is reasonably to be inferred from the res gestae themselves, justice seems to require some such limitation of the scope of the statute, which might otherwise interpose an obstacle even to the rectification of material errors, however clearly proved, in an executed conveyance, founded upon an unsigned agreement.9 While extensively reviewing case law Lord Selborne said: The doctrine, however, so established has been confined by judges of the greatest authority within limits intended to prevent a recurrence of the mischief which the statute was passed to suppress. The present case, resting entirely upon the parol evidence of one of the parties to the transaction, after the death of the other, forcibly illustrates the wisdom of the rule, which requires some evidentia rei to connect the alleged part performance with the alleged agreement. There is not otherwise enough in the situation in which the parties are found to raise questions which may not be solved without recourse to equity. It is not enough that an act done should be a condition of, or good consideration for, a contract, unless it is, as between the parties, such a part execution as to change their relative positions as to

[page 147] the subject-matter of the contract. … [I]t may be taken as now settled that part payment of purchase-money is not enough; and judges of high authority have said the same even of payment in full. … Some of the reasons which have been given for that conclusion are not satisfactory; the best explanation of it seems to be, that the payment of money is an equivocal act, not (in itself), until the connection is established by parol testimony, indicative of a contract concerning land. I am not aware of any case in which the whole purchase-money has been paid without delivery of possession, nor is such a case at all likely to happen. All the authorities [show] that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged. … The acts of part performance, exemplified in the long series of decided cases in which parol contracts concerning land have been enforced, have been (almost, if not quite, universally) relative to the possession, use, or tenure of the land. The law of equitable mortgage by deposit of title deeds depends upon the same principles.10 Lord Selborne reviewed many of the very numerous cases on part performance. They show that judicial opinion has not been completely uniform but from the earliest times there was unreadiness to give the Statute of Frauds its full literal effect. The readiness of the Court to give effect to equities arising upon conduct in performance of the contract does not provide a full or satisfactory exposition of unreadiness to treat part payment of the purchase money as an act of part performance; but as recognised by Lord Selborne that attitude to part payment was as well established by judicial authority as the doctrine of part performance itself. … Consideration of part performance in the High Court of Australia has not produced any relaxation or departure from Maddison v Alderson. In McBride v Sandland Isaacs and Rich JJ … said: (4) It must have been in fact done by the party relying on it on the

faith of the agreement, and further the other party must have permitted it to be done on that footing.11 This is a very stringent requirement. Their Honours also said that it remained to be shown: (7) That the act was done under the terms of that agreement by force of that agreement.12 Their Honours did not refer to the standing of part payment as an act of part performance, as their consideration was limited to the facts of that case. The High Court again considered part performance in Cooney v Burns, where there was not in fact a payment. Knox CJ said ‘It is settled that payment of part of the purchase-money is not of itself and apart from other circumstances — eg, delivery of possession — a sufficient act of part performance to take a case out of the statute. …’13 In JC Williamson Ltd v Lukey & Mulholland, which related to an oral agreement for a five-year lease, the decision did not turn solely on part performance, but also involved suitability [page 148] of the agreement for specific performance. Dixon J said ‘Equitable relief is obtainable, notwithstanding the Statute of Frauds, by a party who in pursuance of his contract has done acts of performance consistent only with some such contract subsisting …’14 and this appears to allude to Lord Selborne in Maddison v Alderson. Dixon J also said ‘The acts of part performance must be such as to be consistent only with the existence of a contract between the parties, and to have been done in actual performance of that which in fact existed.’15 … Regent v Millett was a case in which the vendor in an oral contract for sale permitted the purchaser to take possession, and this was treated as an act of part performance, although there was no contractual obligation to take

possession. Justice Gibbs, in an ex tempore judgment with which other members of the Court agreed, said: … it was submitted that a narrower test should be adopted and that it was necessary to establish ‘such a performance as must necessarily imply the existence of the contract’ — to use the words of Lord O’Hagan in Maddison v Alderson. However, the test suggested by the Earl of Selborne LC in that case, that the acts relied upon as part performance ‘must be unequivocally, and in their own nature, referable to some such agreement as that alleged’, has been consistently accepted as a correct statement of the law. It is enough that the acts are unequivocally and in their own nature referable to some contract of the general nature of that alleged (see McBride v Sandland).16 Justice Gibbs also adopted an expression in Dr Williams’ text17 ‘The change of possession of land has been described as “the act of part performance par excellence”.’ In Waltons Stores (Interstate) Ltd v Maher Brennan J said: In order that acts may be relied on as part performance of an unwritten contract, they must be done under the terms and by force of that contract and they must be unequivocally and in their nature referable to some contract of the general nature of that alleged: Regent v Millett. The acts which were held to amount to part performance were done by the Mahers to develop their own property, and the development was clearly for a commercial purpose. But, in my respectful opinion, those acts are not unequivocally and in their nature referable to an agreement for the lease of the Mahers’ land.18 This passage is a restatement in classic terms of a formulation which has been repeatedly approved in the High Court, and has not received any disapprobation. In Steadman v Steadman the House of Lords, in a case about a complicated agreement for settlement of maintenance and property disputes between husband and wife, treated a payment of £ 100 arrears of maintenance,

which was required by a term of the agreement, as an act of part performance so as to enable specific enforcement of another term under [page 149] which the wife was to surrender her interest in the matrimonial home for another payment of money which had not been made. Law Lords in the majority expressed dissatisfaction with the general rule that payment of money cannot constitute an act of part performance of a parol contract for disposition of an interest in land. Lord Reid said: Normally the consideration for the purchase of land is a sum of money and there are statements that a sum of money can never be treated as part performance. Such statements would be reasonable if the person pleading the statute tendered repayment of any part of the price which he had received and was able thus to make restitutio in integrum. That would remove any ‘fraud’ or any equity on which the purchaser could properly rely. But to make a general rule that payment of money can never be part performance would seem to me to defeat the whole purpose of the doctrine and I do not think that we are compelled by authority to do that.19 Lord Simon of Glaisdale said that the reasons for the rule did not justify it ‘as framed so absolutely.’20 Lord Salmon was of the view that payments may be ‘acts from which the nature of the contract can be deduced’, while saying ‘It is no doubt true that often it is impossible to deduce even the existence of any contract from payment. … Nevertheless the circumstances surrounding a payment may be such that the payment becomes evidence not only of the existence of the contract under which it was made but also of the nature of that contract. What the payment proves in the light of its [surrounding] circumstances is not a matter of law but a matter of fact.’21 Viscount Dilhorne said that his Lordship found it difficult to say on what principle the conclusion excluding payments of money from part performance had been reached.22 Lord Morris of Borth-Y-Gest dissented. Later legislative changes in the United Kingdom seem to make it unlikely that the House of Lords will again consider such a question.

In Australian and New Zealand Banking Group Ltd v Widin the Full Court of the Federal Court of Australia applying the Conveyancing Act treated part performance as authoritatively expounded in Maddison v Alderson and was of the view that there were acts of part performance in that case without resort to treating payment as an act of part performance. Justice Hill made an extremely comprehensive review and concluded: ‘It may be possible to reconcile what is said in Steadman with the orthodox approach taken by the High Court to date and while there is much to be said for the adoption in Australia of Steadman, these are matters for the High Court rather than an intermediate Court of Appeal.’23 I take the same view. In the present case there are no acts of ownership such as taking possession, paying rates or paying for the upkeep or improvement of the property, or receipt of rent or profits, or any other act at all. Acts of part performance have been almost universally closely related to possession and use or tenure of the land itself, such as where a purchaser is [page 150] put into possession by the vendor, or allowed to take possession by the vendor, or where the purchaser carries out improvements. They have not necessarily been acts which the contract requires to be done. Acts on the land can much more readily be seen as unequivocally referable to the contract than payments of money. The anomaly of not recognising payment as an act of part performance is clear. … The whole law of part performance is established by judicial authority, and discerning underlying principle is an obscure process. … Unless authoritatively directed to do otherwise, my view is that the Court of Appeal should apply the doctrine of part performance as it has received it, according to the terms in which it has been recognised in decisions of the High Court of Australia. The unavailability of payments as acts of part performance is part of what has been so received. Payment may be relevant for other reasons yet not be treated as an act of part performance for the operation of s 54A. It is always necessary to prove

the terms of the oral agreement, and the acts done in relation to the contract and its performance, including all payments made, can be put in evidence to show that there was an oral agreement as well as to show that there has been part performance. Payments are also relevant as part of the material upon which the Court is to act in deciding to award specific performance, which has a discretionary element, and is done in a way which resolves the whole controversy and sees to performance of outstanding obligations of each party. Observations in Steadman v Steadman disapproving of excluding payments as acts of part performance are not altogether uniform. If the observations of Lord Salmon are applied, it cannot, in my opinion, be said that the series of payments to the Bishop are evidence either of the existence of the contract between Bechara and Peter, or of the nature of that contract. On no view was the arrangement between Bechara and the Bishop and the series of payments referable, let alone unequivocally referable, to the agreement between Bechara and Peter. That agreement required Bechara to do something quite different, to pay the instalments to the Commonwealth Bank, not to rely on a different arrangement which he made with the Bishop and to act on that other arrangement; and no less so if the fact is, as the Trial Judge inferred, that the Bishop did things which brought about the same result as performance of the contract would have done. Whether or not payments could qualify as acts of part performance, these payments to the Bishop, and the arrangement with the Bishop for the Bishop to pay the instalments, have no claim at all for consideration as acts unequivocally referable to the contract as found or to a transaction of that kind. However that leaves the payment of the $30,000 for consideration; if there were no rule excluding payments, this payment would seem to fulfil every requirement for an act of part performance. As the law is, neither can be regarded, and s 54A stands in the way of Bechara’s obtaining any relief in judicial proceedings, whether the declaratory order which he obtained, or any other relief.

Comment 8.3.1 See Radan, Gooley, and Vickovich at 8.29–8.44.

1.

Section 54A(1) of the Conveyancing Act 1919 (NSW) states as follows: ‘No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged.’

2. 3.

[1951] Ch 941. (1953) 89 CLR 1.

4. 5.

Thirkell v Cambi [1919] 2 KB 590. Setting instruction. Butcher v Stapely (1685) 23 ER 524.

6. 7.

(2005) 221 CLR 612 at 623–4. (1883) 8 App Cas 467 at 474.

8. 9.

Last v Rosenfeld [1972] 2 NSWLR 923 at 927. Maddison v Alderson (1883) 8 App Cas 467 at 474–6.

10. 11.

Maddison v Alderson (1883) 8 App Cas 467 at 478. McBride v Sandland (1918) 25 CLR 69 at 79.

12. 13.

McBride v Sandland (1918) 25 CLR 69 at 79. Cooney v Burns (1922) 30 CLR 216 at 222–3.

14. 15.

JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 at 297. JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 at 300.

16. 17.

Regent v Millett (1976) 133 CLR 679 at 682–3. James Williams, The Statute of Frauds Section Four in the Light of its Judicial Interpretation, Cambridge, 1932, Chapter 7.

18. 19.

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432. Steadman v Steadman [1976] AC 536 at 541.

20. 21.

Steadman v Steadman [1976] AC 536 at 565. Steadman v Steadman [1976] AC 536 at 570.

22. 23.

Steadman v Steadman [1976] AC 536 at 555. Australian and New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21 at 37.

[page 151]

9 CAPACITY

INTRODUCTION 9.1 This chapter deals with the issue of contractual capacity, principally from a common law perspective. In order to enter into a contract and to enforce it, the parties to it must have contractual capacity. However, not all persons or entities have full contractual capacity and some, in fact, lack any contractual capacity. This lack of capacity impacts not just upon the individual who lacks capacity, but also upon the party that they have dealt with who may be under the impression that they have entered into legally-binding contractual obligations. Lack of capacity impacts upon enforceability of those obligations. A number of the authorities extracted in this chapter focus upon illustrations of individuals who are minors entering into contractual relations with other parties. These authorities illustrate common law principles that have been developed in this regard. In the cases extracted, questions have arisen as to whether the particular contracts were binding and whether the contract could be repudiated. In Roberts v Gray [1913] 1 KB 520 (see 9.2C) it was held that the particular contract with a minor was enforceable because it satisfied the common law requirement that it was one for necessities. The criteria for necessities were examined in this case. In Hamilton v Lethbridge (1912) 14 CLR 236 (see 9.3C) the essential question was whether a contract with a minor was capable of being affirmed by the minor when he came of adult age. The court held that the contract was capable of affirmation and in reaching that decision, examined the options

available to a minor who had entered into a contract, but who now had reached their majority before the contract had been discharged. In relation to contracts with minors it is sometimes the case that a third party influences the minor to avoid a contract that the minor had made in circumstances where the minor could have elected to affirm that contract upon obtaining their majority. This issue was raised in Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542 (see 9.4C), which concerned an English football player who had entered into a representative agreement and who was induced by a third party to avoid that agreement. It was held in the particular case that there was no liability for inducing a breach of a voidable contract by the minor. Not all cases involving lack of capacity involve minors. In company law (and, indeed, in the law relating to associations that have constitutions) an issue may arise as to whether the particular entity, such as a company, has the capacity to enforce a contract that may have been made notwithstanding that the company did not have the power in its constitution to enter into the contract in the first place. At common law such contracts were void ab initio. Although modern [page 152] legislative developments dealing with the law relating to corporations and/or incorporated associations have altered the common law position — primarily because those legislative developments have included provisions that give entities the powers of natural persons — nevertheless it was relatively common for parties to seek to avoid contracts on the basis that one of the contracting parties did not have the contractual capacity to make the particular contract. These issues were discussed in Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246 (see 9.5C).

THE CONTRACTUAL CAPACITY OF AN INFANT 9.2C

Roberts v Gray [1913] 1 KB 520

Court: Court of Appeal in England Facts: Gray (an infant) entered into a contract with Roberts (a professional billiard player) pursuant to which Roberts agreed to accompany Gray on a world billiard tour and whereby both would play billiard tournaments together. After entering into the contract Roberts spent money and effort in making tour arrangements. However, due to a dispute between Gray and Roberts, the tour was cancelled. Roberts sued Gray for breach of contract. Issues: The issues before the Court of Appeal were whether an infant could be sued for breach of contract, whether the contract was binding between the parties, and whether the contract could be repudiated. Decision: The Court of Appeal (Cozens-Hardy MR, Farewell and Hamilton LJJ) unanimously held that the contract between Gray and Roberts was binding, as it was regarded as one for necessities. It was noted that Gray had received some form of instruction under Roberts and that the contract did not involve unreasonable terms. In the circumstances it was held that Gray could not repudiate the agreement. Extract: The extracts from the judgments of Cozens-Hardy MR and Farewell LJ discuss the concepts of necessaries and a contract for an infant’s benefit.

Cozens-Hardy MR [A]s early as Lord Coke … it has been held that an infant’s contract for necessaries is binding, and it was laid down by him that the doctrine also applied not merely to bread and cheese and clothes, but to education and instruction. … It applies to education and instruction in the social state in which the infant is, and in which he may expect to find himself when he becomes an adult. … Now, what is the effect of a contract which is entered into by an infant with reference to necessaries, including instruction and education? We have heard an argument forcibly put before us that such a contract may be good

so far as the consideration has been executed, but that it cannot be enforced so far as it is executory. For that proposition I think there is no authority, and I certainly think that it is not open to this Court to say that there is any such rule. [page 153] We are bound by Clements v London and North Western Railway Co.1 There the contract was a contract of service by the infant. A term of the service was that he should become a member of the Society for the employees of the London and North Western Railway Co, and, in consideration of certain benefits, he was not to bring any action against the company in case of accidents whether due to the company’s negligence or not. The Court considered the contract as a whole. It is quite idle to say ‘look at the contract and see if there is one clause which is adverse to the infant’. The Court cannot consider whether that is for the infant’s benefit and, if it is not, say that the whole contract is therefore void; it must look at the contract as a whole and see whether, looking at it as a whole, it is a contract for the infant’s benefit, not merely a contract for necessaries, but if it is a contract which is on the whole for the infant’s benefit. If so, what is the result? Lord Esher says if upon consideration of the whole of the contract there is a manifest advantage to the infant he cannot avoid it.2 Then Kay LJ says: ‘I agree with the Divisional Court that, on examination of the whole contract, it is to the benefit of the infant, although it contains terms that, standing alone, would not be for his advantage. There is, therefore no right on the part of the infant to repudiate the contract’.3 A L Smith LJ quoting with approval the passage in the judgment of Fry LJ sitting, not in the Court of Appeal, but as a judge of the Chancery Division, in De Francisco v Barnum says: ‘there is another exception which is based on the desirableness of infants employing themselves in labour, therefore, when you get a contract for labour, and you have a remuneration of wages, that contract, I think, must be taken to be prima facie binding upon the infant. I take this to be good law. Prima facie, therefore, this contract is binding on the infant’.4 If, therefore this is a contract falling within a class to which the doctrine of necessary supplies, and if, taken as a whole, it is to the infant’s benefit, I see no foundation whatever for the

argument that the infant is not liable for damages in the event of his repudiating or declining to perform the contract entered into. …

Farewell LJ This is clearly a contract for necessaries within the meaning which that phrase has had attached to it in the course of many centuries since Lord Coke wrote. It is in effect for board, lodging, travelling and employment all found at the plaintiff’s expense for the infant and involved in the employment, and the education which a billiard player of receptive capacity could not fail to obtain from playing continually month after month with a great billiard player like John Roberts. Every item which goes to make up necessaries in the sense of a labour and education contract, except the express term to give the education, which would be necessary if it were an apprenticeship deed, it is in this particular contract as much so as though, instead of funding the board and lodging on board ship and in various hotels, Roberts had found it in a house of his own where he gave exhibitions. I cannot doubt that this is a contract for necessaries. [page 154] Then the next thing is, is it for the benefit of the infant, because, although a contract for necessaries is prima facie binding, it may be shewn to contain terms so harsh as not to be binding on the infant. In my opinion, it is clearly for the benefit of the infant, and I see nothing to suggest that it is in the least harsh upon him.

Comment 9.2.1 See Radan, Gooley, and Vickovich at 9.13 and 9.18. 9.3C

Hamilton v Lethbridge (1912) 14 CLR 236

Court: High Court of Australia

Facts: The father of a minor named Lethbridge entered into an employment contract on behalf of his son with Hamilton, a solicitor. The contract contained a provision that bound Lethbridge to serve Hamilton for five years as an articled clerk. The contract also contained a provision that prevented Lethbridge, when he later qualified, from practising as a solicitor within 50 miles of Toowoomba, the town in which Hamilton practised as a solicitor, unless Hamilton consented. The contract stated that Lethbridge’s father would be liable to pay Hamilton the sum of £ 2000 if Lethbridge were guilty of a breach of that obligation. Lethbridge’s father also agreed that his son, on obtaining 21 years of age, would enter into a similar covenant. The son continued service under the articles for a period of two years after he attained 21 years of age, but he did not enter into the additional covenant. Within a short time of Lethbridge graduating as a solicitor he commenced practice within the restricted area. Hamilton then applied for an injunction seeking to restrain. Issue: The issue before the High Court was whether the restraint of trade in the contract was unreasonable as such to protect the minor from the covenant. Decision: The High Court (Griffith CJ, Barton and Isaacs JJ) unanimously held that Hamilton was entitled to an injunction against Lethbridge. The court held that the contract of employment was binding upon Lethbridge notwithstanding the presence of a restraint of trade clause within the agreement. As part of the decision it was held that Lethbridge had ratified and adopted the articles of clerkship and that the restraint preventing him from practice was binding on him. In those circumstances the onus was on Lethbridge to establish that the restriction as to time and place was excessive. Extract: The extract from the judgment of Griffiths CJ sets out and applies the principles concerned with whether a contract is for the minor’s benefit, and with ratification of the contract after the minor comes of age.

[page 155]

Griffith CJ Some contracts made by an infant are said to be absolutely void, but that rule does not in general apply, as I understand it, to executory contracts still open to be performed on the attainment of majority. Other contracts by an infant are in general voidable only. It cannot be suggested that articles of apprenticeship or articles of clerkship are absolutely void, although there is high authority for saying that a covenant, although contained in articles of apprenticeship, is void and cannot be enforced against an infant after attaining 21 as was pointed out by Chitty J in the case of De Francesco v Barnum.5 A contract made by an infant cannot be enforced against him during infancy unless it is held to be for his benefit. For the purpose of determining that question the whole of the contract must be looked into, and not a particular portion only. Clements v London and N W Railway Co6 is sufficient authority for that proposition. When an infant comes of age he is free to affirm or disaffirm the contract as to anything remaining to be done under it. If he affirms it the question of it being for his benefit no longer arises. If he disaffirms it there is an end of the matter. He must do one thing or the other. The principal objections taken to this contract now in question, as showing that it was not for the benefit of the infant, were based on the covenant restricting the right of practice, and the provisions as to assignment of the articles. The first of these objections is based upon public policy. So far as regards public policy the point is just the same whether the covenantor is an infant or an adult. If the restriction is not against public policy and is not too wide for the protection of the master, the question would be whether on the whole it was for the benefit of the infant to enter into a contract in which such a stipulation regarded per se was reasonable. The question of minority is quite irrelevant. One point taken was that the restriction was unusual in Queensland. In my opinion, in the present circumstances of Queensland, in which the conditions are constantly changing with the growth and distribution of population, it is impossible to say that any stipulation in articles is usual or unusual. All that can be said is that in the still comparatively small number of cases that have occurred some stipulations have been used oftener than others, or rather that one has been more

frequently adopted than others. It appears, indeed, that in fact a stipulation in the terms of this covenant has been by no means infrequent in Queensland. … The contract now in question as a whole is clearly not void, but at most voidable. When an infant by whom a voidable contract has been made comes of age he must, as I have already stated, elect whether he will affirm or disaffirm it. If he elect to disaffirm it, which in this case he did not do, he must do so within a reasonable time. … In this case after [Lethbridge] came of age he continued to serve under the articles for more than two years after the assignment. That, of itself amounts to ratification and adoption by the infant. I will read what was laid down in the case of Harris v Wall: — ‘Any act or declaration which recognises the existence of the promise as binding is a ratification of it, as, in the case of agency, anything which recognises as binding an act done by an agent, or by a party who has acted as agent, is an adoption of it. Any written instrument signed by the party, [page 156] which in the case of adults would have amounted to the adoption of the act of a party acting as agent, will in the case of an infant who has attained his majority amount to a ratification’.7 As I said, [Lethbridge] continued in [Hamilton’s] service for more than two years after the assignment, and I should be disposed to hold, if it were necessary, on the authority of Cornwall v Hawkins8 that that in itself would be sufficient. But that is not all. In the deed of assignment, executed more than two years after [Lethbridge] came of age, it is recited that ‘by articles of clerkship dated the twenty-eighth day of April one thousand nine hundred and five the said Christopher Baron Lethbridge (of his own free will and with the assent of his father William Baron Lethbridge of Mitchell in the State of Queensland Clerk since deceased) did bind himself Clerk to the said Charles William Hamilton to serve him from the day of the date thereof for the term of five years thence next ensuing and subject to the covenants and conditions therein contained’. By the same deed it

was agreed that, notwithstanding the assignment, the father’s covenant in the original articles that he should not practise in Toowoomba or within 50 miles thereof and that if he did he should be liable to pay £ 2,000 as liquidated damages, and further the covenant by the father that the son should enter into a covenant to that effect immediately on attaining 21, should remain in full force and effect as if the assignment had not been executed. I do not know how a more clear and distinct ratification and adoption of the obligations contained in the original articles could be expressed. Alternatively it may be regarded, if necessary, as a new contract by [Lethbridge] himself. It is, indeed, both a new contract and a ratification of the old one. Further, [Lethbridge] applied to the Supreme Court for admission as a solicitor on the faith of these articles, and of his service under them, and put them forward as the basis and foundation of his right to admission. For these reasons I think the fact that he was a minor when the articles were originally executed is quite irrelevant, and that he is bound by the ratification of the original contract, from whatever point of view you look at it.

[page 157]

Comment 9.3.1 See Radan, Gooley, and Vickovich at 9.20 and 9.26. 9.4C

Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542

Court: Chancery Division Facts: Wayne Rooney, a well-known football player in England, entered into a representative agreement with Proform Sports Management Limited in December 2000, at a time when he was 15

years old. Rooney’s father also signed the agreement. The term of the agreement was for two years. On 27 June 2002 Rooney and his parents wrote to Proform and advised them that they would not be renewing the agreement after its expiry in December 2002. On 14 December 2002, three days after the expiry of the agreement with Proform, Rooney entered into a representative agreement with Proactive Sports Management Limited. Subsequently, Proform brought proceedings for unlawful interference with and/or the procuring of a breach of the representative agreement dated December 2000. Issue: The issue before the Chancery Division was whether there could be any liability for inducing or facilitating a breach of a voidable contract with a minor. Decision: Judge Hodge QC held there could be no liability for inducing or facilitating a breach of a voidable contract with a minor. Extract: The extract from the judgment of Hodge J sets out and applies the principles concerned whether there could be any liability for a voidable contract with a minor.

Judge Hodge QC The first ground of [Proactive’s] application is that they cannot be liable for inducing the breach of a voidable contract. The principles are said to be expressed at para 25-23 of Clerk and Lindsell on Torts.9 I quote: Where the contract is determinable, the defendant incurs no liability merely by inducing the contracting party to determine the contract lawfully, for there is then no breach. It must follow therefore that it is no tort to procure the breach of a voidable contract, at least where the person induced is the party who enjoys the right to rescind. I was taken to a number of authorities in support of these propositions. It is said by Mr Joffe for [Proactive] that the proposition that it is no tort to procure the breach of a voidable contract must follow logically from the proposition that the defendant incurs no liability merely by inducing the contracting party to determine the contract lawfully. He submits

[page 158] that Slade J was prepared to assume that such was the law in Greig v Insole, World Series Cricket Pty Ltd v Insole.10 Slade J recorded that a question that had been the subject of some argument before him was whether it could be a tort to induce the breach of a merely voidable agreement. His conclusion was as follows: For the purpose of this judgment, therefore, so far as it is relevant at all, I propose to assume in favour of the defendants, without deciding, that it does not constitute a tort for a third party to induce a person to exercise a lawful right to rescind a contract. Mr King [for Proform] relies upon the limited terms of Slade J’s assumption that it does not constitute a tort for a third party ‘to induce a person to exercise a lawful right to rescind a contract’. Mr King says that that statement does not extend beyond inducing a person to exercise a lawful right to rescind a contract. It does not in terms apply to inducing a person to act in breach of a contract which is voidable, but which he has not then previously sought to avoid. Mr Joffe says that two earlier authorities neither considered by, nor even cited to, Slade J show clearly that there can be no liability for procuring the breach of a voidable contract with a minor. He submits that those decisions go further than the assumption that Slade J was prepared to make. Those cases are both decisions at first instance. The first is De Francesco v Barnum11 a decision of Fry LJ sitting as an additional judge of the Chancery Division. The other decision is Shears v Mendeloff,12 a decision of Avory J sitting with a common jury. Mr King points out that in Shears v Mendeloff, the second paragraph of the recital of the facts records that the contract was one that the minor was not only entitled to repudiate, but one ‘that he did repudiate in the Autumn of 1913’. Thus Mr King says that Shears v Mendeloff was not a case in which the matter fell to be decided. So far as the other authority, De Francesco v Barnum, is concerned, he submits that there is no indication in Fry LJ’s judgment that he considered this actual point at all. Mr King makes the point that neither authority is cited in Chitty on Contracts13 in connection

with the proposition for which Greig v Insole is cited as authority. He submits that in De Francesco v Barnum the issue simply did not raise its head at all. He submits that, until avoided, the contract is binding. He questions the principle that no one can be liable for inducing the breach of a voidable contract, on the footing that, unless and until a voidable contract has been avoided, it remains valid. Mr Joffe submits that the Proform agreement was at all times a voidable contract which was avoided in June, or if not in June, in September, 2002, and therefore there can be no liability in tort, even if, which he denies, [Proactive] procured a breach of that contract. Mr King submits that the 27 June letter, rather than seeking to avoid the contract, in terms acknowledged that the claimant’s agreement would continue until December 2002, and therefore cannot be relied upon as an avoidance of the contract. … [page 159] On the issue of law as to whether there can be any liability for procuring the breach of a voidable contract with a minor, I find in favour of Mr Joffe’s argument. I acknowledge that Slade J merely assumed that it was not a tort for a third party to induce a person to exercise a lawful right to rescind a contract. In my judgment, although he was merely prepared to assume that, he was right to do so. I agree with Mr Joffe that it follows logically from the proposition that where a contract is determinable, the defendant incurs no liability merely by inducing the contracting party to determine the contract lawfully, for there is then no breach, that it is no tort to procure the breach of a voidable contract, at least where the person induced is the party who enjoys the right to rescind. I accept Mr King’s submission that the point was not decided in Shears v Mendeloff because on the facts it was unnecessary to do so, the contract having already been repudiated. I am also prepared to accept that the point may not have been directly thrown up for decision in De Francesco v Barnum; but it does seem to me that if a contract is voidable, then there should be no liability for procuring the breach of it. It does not matter whether the contract has already been avoided, or whether the alleged tortfeasor merely induces the minor to breach the contract. If

the contract is one which the minor is entitled to avoid, then it does not seem to me that liability for the tort of wrongfully interfering with, or of inducing the breach of, the contract should arise. I can see no justification for holding a defendant liable for the tort in such circumstances, notwithstanding the fact that the contract remains valid until avoided. The fact that it can be avoided should be, in my judgment, in principle a defence to any claim for the tort of wrongful interference with, or wrongfully procuring a breach of, the contract. It then becomes necessary to consider the next stage in Mr Joffe’s argument. He submits that the law as to minors’ contracts is correctly stated in Chitty.14 Paragraph 8-004 identifies the only contracts which are binding on the minor as contracts for necessaries. However, a diversity of meanings has been given to the word ‘necessaries’. In one sense the term is confined to necessary goods and services supplied to the minor, but in another it extends to contracts for the minor’s benefit and in particular to contracts of apprenticeship, education and service. Paragraph 8-005 provides that apart from contracts for necessaries and contracts of apprenticeship, education and service, the general rule at common law is that a minor’s contract is voidable at his option; ie not binding on the minor, but binding on the other party. As to other beneficial contracts, Mr Joffe relies on para 8-028. I quote: The principle that contracts beneficial to a minor are binding on him is not confined to contracts for necessaries and contracts of employment, apprenticeship or education in a strict sense. It extends also to other contracts which in a broad sense may be treated as analogous to contracts of service, apprenticeship or education. So, for instance, a contract by a minor (who was a professional boxer) with the British Boxing Board of Control whereby he agreed to adhere to the rules of the Board was held binding on him because he could not have earned his living as a boxer without entering into the agreement. [page 160]

The authority cited is Doyle v White City Stadium Ltd.15 Similarly, it has been held that an agreement between a minor and a publisher for the publication of the minor’s biography which was to be written by a ‘ghost writer’, was binding on the minor. The authority cited is Chaplin v Leslie Frewin (Publishers) Ltd.16 So also, a contract between a group of under-age musicians (known as ‘The Kinks’) whereby they appointed a company as their manager and agent was held binding as analogous to a contract of employment. … The authority cited is the first instance decision in Denmark Productions Ltd v Boscobel Productions Ltd.17 The footnote goes on to contrast from that case the case of Shears v Mendeloff, where the contract contained oppressive terms and was void. The text goes on: On the other hand there is no general principle to the effect that any contract beneficial to a minor is binding on him. So a minor’s trading contracts are not binding on him, even if beneficial. Thus, two questions arise. First, whether the contract between Wayne Rooney and Proform falls within the class of contracts analogous to contracts for necessaries and contracts of employment, apprenticeship or education. If so, secondly, and only if the first question is answered in a positive sense, whether this particular contract was one which was beneficial to Wayne Rooney. Mr Joffe submits that a contract analogous to one of apprenticeship, education or employment is only enforceable against a minor if it is of benefit to him at the time when he enters into it. Where the contract contains terms, some of which are beneficial to him and others not, the question is whether, taken as a whole, the contract is to his advantage. The burden of showing benefit is always on the party seeking to uphold the contract. At para 31 of his written skeleton argument, Mr Joffe poses the question whether the Proform agreement fell within the class of minors’ contracts which were analogous to those of apprenticeship, education and service. At sub-para 6 he proposes a negative answer to that question. He says that Proform cannot show that the contract is so analogous. At the time when it was signed, Mr Rooney was already with a

club, Everton, that was providing him with training. He had no need for any training from Proform. He submits that the Proform agreement makes no provision for training, education or instruction in any way. The absence of such provision was, he submits, the basis of the decision in Shears v Mendeloff that the contract could not be construed as one for necessaries. Shears v Mendeloff was of course the case before Avory J, where a minor who was a professional boxer had appointed the plaintiff his sole manager on commission and agreed not to take any engagements under any other management without the plaintiff’s consent for three years. Such a contract was held [page 161] unenforceable against the infant, on the grounds that it was a trading contract, and also as one which could not be construed as being beneficial to him. Mr Joffe contrasts such a case with the decision in Roberts v Gray,18 where the infant had entered into a contract to go on a tour as a professional billiard player. That contract was held to be one for necessaries and for his benefit. The Court of Appeal held the contract to be binding on him as a whole. Mr Joffe submits that the basis of the decision in that case was clearly that the contract could be construed as one for necessaries, because it was for teaching, instruction and employment. By contrast, he submits that the Proform agreement contains nothing which can be said to be analogous to instruction, education or training. Nor did the Proform agreement permit Mr Rooney to make a start as a footballer or enable him to earn a living. It is on that basis that he distinguishes the cases of Chaplin v Leslie Frewin (Publishers) Ltd19 and Doyle v White City Stadium Ltd,20 which are authorities relied upon by Mr King. Mr Joffe submits that in those two cases the minor was enabled to earn a living by reason of a contract he entered into. That is not the position here. There was no payment being made to him. He was already contracted to Everton. That was all that he needed. He had no need of a contract to represent him as a professional footballer. He would on turning 17 be in a position to earn his living via a contract with Everton Football Club or any other club, and he had no need of an agreement with an agent to enable him to do so.

Certainly he did not need to be bound to such an agent for two years. After all, he could not under the Football Association Rules sign a professional contract at the earliest until he was 17, assuming he was not then in full-time education; and he had no need of representation in his work as a professional footballer, as cl 1 of the Proform agreement stated. Mr King submits that the terms of the Proform contract speak for themselves. He relies upon the terms of Mr McIntosh’s witness statement, which record that Proform was providing all the functions in respect of personal representation and management, advice and negotiation for the benefit of Wayne Rooney. That was intended to encompass all aspects of the services undertaken by the claimant for a player aged 17 years or under. He submits that the case falls squarely within the principle stated at para 8028 of Chitty, that contracts beneficial to a minor, and which can thus be upheld, are not confined to contracts for necessaries and contracts of employment, apprenticeship or education in a strict sense. They extend also to other contracts which in a broad sense may be treated as analogous to contracts of service, apprenticeship or education. In any event, he submits that the defendants cannot establish — and the burden is upon them — that the claimant has no real prospect at trial of bringing the agreement within these principles. Whether the agreement is within the same must, he submits, be a mixed question of construction and fact. I am conscious that on this issue I have, as Mr King submits, to be satisfied that the claimant has no real prospect of succeeding in establishing that the Proform agreement falls within the class of contracts analogous to those described as contracts for necessaries, contracts of employment, apprenticeship or education. Clearly Wayne Rooney’s agreement with Everton Football Club would fall squarely within the class of contracts identified at para 8-028 of Chitty. However, [page 162] it does seem to me that the same cannot be said of the Proform agreement. On the evidence, Mr Rooney was already engaged with Everton. Under the terms of the Football Association rules, he could not enter into any contract of employment until he was 17, if then not in full-time education. Even if he

entered into a contract with Everton when he was 17, that contract, if not for his benefit, would of course be voidable at his election. It does not seem to me that a contract in the terms of the Proform agreement, whereby Proform was to act as his executive agent and to carry out all the functions in respect of personal representation on behalf of his work as a professional football player, falls to be considered as analogous to the class of contracts considered at para 8-028 of Chitty. As I say, Mr Rooney was already with Everton on Mr McIntosh’s own evidence. … At this time, and indeed in 2002, Wayne Rooney only wanted to play for Everton; he did not wish to play for any other club. He was already doing so. It does seem to me that the Proform agreement is much more analogous to the contract considered by Avory J in Shears v Mendeloff than it is to the class of contract considered in cases such as Doyle v White City Stadium Ltd and Chaplin v Leslie Frewin (Publishers) Ltd and Denmark Productions Ltd v Boscobel Productions Ltd. As Mr Joffe submitted, music group managers are very different from player’s representatives. Music group managers organise matters that are essential to the very business of the musical artiste. Players’ representatives do not undertake matters that are essential to the player’s training or his livelihood. They do not enable the minor to earn a living or to advance his skills as a professional footballer. In my judgment, cases such as Chaplin v Leslie Frewin (Publishers) Ltd and Doyle v White City Stadium Ltd make it clear that the basis of the class of analogous contracts is that the minor is entitled to earn his living or to start to do so. It does not seem to me that the Proform agreement is analogous to such a contract. I say that particularly bearing in mind the fact that, under the Football Association rules, no contract can be entered into by a player as young as Wayne Rooney then was. No contract could properly be entered into by him until a time less than two months before this representation agreement was due to expire; and even if entered into by Wayne Rooney at that time, it would have been voidable at his instance if not genuinely for his benefit. That would have continued to be so throughout the remaining short duration of the management and agency agreement. It seems to me that the Proform agreement is at one remove from the class of contract that has been treated in the authorities as being subject to the exception to the general voidability of minors’ contracts, applicable where such a contract is for the minor’s benefit. As para 8-028 of Chitty makes clear, ‘A minor’s trading contracts are not binding on him, even if beneficial’. It seems to me

that this case falls within the general principle that merely because a contract is beneficial to a minor, if such is the case, it is not binding on him unless it falls within a particular category. So for those reasons, it seems to me that Mr Joffe is correct in saying that the Proform agreement does not fall within the class of minors’ contracts which are analogous to contracts of apprenticeship, education and service.

[page 163]

Comments 9.4.1 See Radan, Gooley, and Vickovich at 9.16 and 9.21–9.24. 9.4.2 For analysis of the principles relating to inducing a breach of contract, see Radan, Gooley, and Vickovich at 37.38–37.66.

THE CAPACITY OF A COMPANY AT COMMON LAW 9.5C Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986]

Ch 246 Court: Court of Appeal in England Facts: Rolled Steel Products (Holdings) Ltd (RSP) was a company formed under the Companies Act 1948 (UK). Prior to its liquidation, RSP carried on the business of importing and selling steel in the United Kingdom. RSP’s main customers were motor manufacturers. Shenkman owned 51 per cent of the issued share capital in RSP and the remaining 49 per cent was held by trustees for Shenkman’s children. RSP’s directors were Shenkman and his father. Clause 3 of the memorandum of association of RSP listed a number of objects, including the following:

(A) To carry on business as exporters and importers of, and manufacturers of, and dealers in, and buying and selling agents for, iron, steel, copper, bronze, aluminium, lead, tin, zinc, antimony and other metal goods of all descriptions and home and foreign and dominion and colonial goods, merchandise and produce of all descriptions. … (K) To lend and advance money or give credit to such persons, firms, or companies and on such terms as may seem expedient, and in particular to customers of and others having dealings with the Company, and to give guarantees or become security for any such persons, firms, or companies. (L) To borrow or raise money in such manner as the Company shall think fit, and in particular by the issue of Debentures or Debenture Stock (perpetual or otherwise), and to secure the repayment of any money borrowed, raised, or owing, by mortgage, charge, or lien upon the whole or any part of the Company’s property or assets (whether present or future), including its uncalled Capital, and also by a similar mortgage, charge, or lien to secure and guarantee the performance by the Company of any obligation or liability it may undertake. The objects clause ended with the following words: It is hereby expressly declared that each Sub-Clause of this Clause shall be construed independently of the other SubClauses hereof, and that none of the objects mentioned in any Sub-Clause shall be deemed to be merely subsidiary to the objects mentioned in any other Sub-Clause. [page 164] RSP’s articles of association included the following provisions: 17 Provided that a Director declares his interest in a contract or arrangement or proposed contract or arrangement with the Company in manner provided by Section 199 of the Act

he shall be counted in the quorum at any meeting of Directors at which the same is considered and shall be entitled to vote as a Director in respect thereof. 18 (a) The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed, shall, be two. … At Shenkman’s request, RSP borrowed money from Scottish Steel Sheet Ltd (SSS), another company controlled by him, to establish a steel service centre which was operated by SSS. SSS became indebted to Colvilles Ltd, a subsidiary of British Steel Corporation (BSC). Shenkman gave a personal guarantee of the SSS debt, but later agreed to an arrangement whereby Colvilles lent sufficient money to RSP to enable it to repay its debt to SSS, in return for RSP agreeing to guarantee repayment of SSS’s debt to Colvilles and to repay the loan from the proceeds of a prompt sale of the steel service centre. When the sale was not effected by the agreed date, RSP gave Colvilles a debenture over its property as security for the loan. Shenkman, in breach of the articles of RSP, did not declare his interest in the transaction when voting on these matters. Colvilles recovered its loan by exercising its rights under the debenture to put RSP into receivership. Sale of the assets did not realise sufficient funds to pay all the unsecured creditors. At the conclusion of the receivership RSP, relying on Shenkman’s nondisclosure being a sufficient breach of duty to render the security ultra vires and void, sued BSC and the receiver for the recovery of all moneys paid by the receiver to BSC. The trial judge held that BSC was entitled to assume that company documents were executed in the proper form, but upheld RSP’s claim on the basis that BSC knew that the guarantee and debenture had been given by RSP for an improper purpose. BSC appealed against that finding. RSP cross-appealed. Issues: The main issues before the Court of Appeal were the questions of principle regarding the capacity and powers of the particular company and the powers and authority of their directors. Decision: The Court of Appeal (Slade, Lawton, and Browne-Wilkinson LJJ) dismissed the appeal and allowed the cross-appeal.

Extract: The following extracts from the three judgments of the court concern the doctrine of ultra vires.

Slade LJ The ultra vires point For many years, the phrase ‘ultra vires’ has from time to time been used by company lawyers in two senses. Primarily it is used to describe acts which are beyond the capacity of a company. … [T]he phrase is also sometimes used to describe acts which are not beyond the [page 165] capacity of the company but simply beyond the authority of either the board of directors or a majority of the shareholders. In many instances, the sense in which the phrase is being used is far from clear. However, I think it plain that … the statement of claim in this case, in alleging that each of the guarantee and the debenture were ‘ultra vires and void’, were intended to allege that their execution was beyond the corporate capacity of [RSP], on the grounds that they were executed not for the purposes or benefit of [RSP] but for the purposes or benefit of Mr Shenkman. … The legal personality of a company incorporated under the Companies Acts exists only for the purpose of its incorporation, as defined in the objects clause, which have to be set out in its memorandum of association. … It does not, however, follow that any act is beyond its capacity unless expressly authorised by its objects clause. Any such company is treated as having implied powers to do any act which is reasonably incidental to the attainment or pursuit of any of its express objects, unless such act is expressly prohibited by the memorandum.21 Strictly, therefore, it is not essential for the memorandum to insert any reference at all to mere powers, as distinct from objects. … The statutory requirement that the objects of a company shall be specified in the memorandum marks one important difference between objects and

powers. In my judgment, however, whether a particular transaction, carried out in purported exercise of an express or implied power contained in a company’s memorandum of association, is within the capacity of the company must still depend on the true construction of that memorandum. … [In this case] [a]ttention … has to be directed to the particular wording of cl 3(K). The authority to give guarantees and become security conferred by the second limb of the sub-clause is not an unrestricted authority. It is merely an authority to give guarantees or become security for ‘any such persons, firms or companies’. The six words just quoted echo the words of the first limb of the sub-clause, which authorise the company to — lend and advance money or give credit to such persons, firms or companies and on such terms as may seem expedient, and in particular to customers of and others having dealings with the Company.[J10] The phrase ‘as may seem expedient’ necessarily implies that there is some criterion by which expediency is to be tested. The only possible criterion, in my opinion, can only mean ‘as may seem expedient for the furtherance of the objects of the company’. The references in cl 3(K) to the giving of credit and to customers of and persons having dealings with the company, make it additionally clear that the sub-clause in its context was intended to comprise merely a series of ancillary powers. It follows that, in my opinion, the power to give guarantees and become security, which are the relevant powers in the present case, are not to be construed as independent objects of [RSP] and the judge was right in so holding. Correspondingly, I think he was right to reject the … argument that the relevant transactions were intra vires [RSP], [page 166] in so far as that argument was based on the hypothesis that the powers conferred by cl 3(K) were independent objects of [RSP]. What, then, is the position if (as I have concluded) the power to give

guarantees and to become security are to be regarded as mere powers ancillary to the objects of [RSP]? Even on this footing, [RSP], in executing the guarantee and the debenture, was performing acts of a nature which, at least seemingly, it was expressly authorised by cll 3(K) and (L) of its memorandum to perform. The particular exercises of these powers were, on the face of them, well capable of falling within the objects of [RSP]. The judge, as I have read his judgment, accepted that these transactions were capable of falling within the scope of the wording of the powers conferred on [RSP] by its memorandum. Nevertheless, he considered that there is a general principle of company law that a transaction, which ostensibly falls within the scope of the wording of a company’s memorandum but is in fact entered into for some purpose not authorised by that memorandum, will be ultra vires the company in what he called the ‘wider sense’, and will confer rights on another party only if he can show that he dealt with the company in good faith and did not have notice that the transaction was entered into for an unauthorised purpose.22 It was primarily on the basis of this principle that the judge ultimately held the [BSC] liable to restore the moneys which they had received. As Lord Selborne said in Ashbury Rly Carriage and Iron Co (Ltd) v Riche: a statutory corporation created by Act of Parliament for a particular purpose, is limited, as to all its powers, by the purposes of its incorporation as defined in that Act.23 Strict logic might therefore appear to require that any act purported to be done by a company in purported exercise of powers ancillary to its objects conferred on it by its memorandum of association, whether express or implied, (eg a power to borrow) would necessarily, and in every case, be beyond its capacity and therefore wholly void if such act was in fact performed for purposes other than those of its incorporation. However, the practical difficulties resulting from such a conclusion for persons dealing with a company carrying on a business authorised by its memorandum, would be intolerable. As Buckley J put it, in regard to a power to borrow, in Re David Payne & Co Ltd, Young v David Payne & Co Ltd: A corporation, every time it wants to borrow, cannot be called upon by the lender to expose all its affairs, so that the lender can say,

‘Before I lend you anything I must investigate how you carry on your business, and I must know why you want the money, and how you apply it, and when you do have it I must see you apply it in the right way’. It is perfectly impossible to work out such a principle.24 The David Payne decision, in my opinion, indicates the proper alternative approach. In that case, the company concerned had express power under its memorandum of association ‘to [page 167] borrow and raise money for the purposes of the company’s business’. It borrowed money and issued a debenture to secure the loan. Its liquidator claimed that the debenture was ultra vires and void because there was evidence that the borrowing had not in fact been made for the purposes of the company’s business. … The most relevant passages in the judgments of the Court of Appeal in the David Payne case are cited in Vinelott J’s judgment and I will not repeat them. Vaughan Williams and Cozens-Hardy LJJ expressly approved the manner in which Buckley J had approached the problem. Vaughan Williams LJ expressly, and the other members of the court implicitly rejected the borrower’s first argument that, since the debenture was not issued to raise money for the purposes of the company, it was ultra vires altogether ‘in such a sense that nothing could make it right’. All three members of the court considered that the plaintiff company could succeed if, but only if, it showed that, at the time of the loan, the lending company knew that the money was going to be applied by the borrowers for an improper purpose and that this had not been proved. The one crucially important point to which Buckley J and the Court of Appeal in Re David Payne & Co Ltd did not expressly advert is the basis on which the lenders would have lost their security if they had known of the improper purpose for which the moneys lent were going to be applied. The basis is, in my opinion, this. The directors of the borrowing company in fact had no authority from the company to take the loan and grant the debenture because these transactions were not effected for the purposes of

the company. Nevertheless, as a general rule, a company incorporated under the Companies Acts holds out its directors as having ostensible authority to do on its behalf anything which its memorandum of association, expressly or by implication, gives the company the capacity to do. … The various passages in the judgments in both courts in the David Payne case which refer to the extent of the lender’s obligation (if any) to inquire as to the purposes for which the loan is to be used, in my opinion, are not directed at all to the corporate capacity of the borrowing company: they are directed to the right of the lender to rely on the ostensible authority of the borrower’s directors. In Re Introductions Ltd the Court of Appeal again had to consider the validity of debentures granted by a company as security for a loan. The company under a sub-cl (N) of its memorandum of association had a general ancillary power to borrow money and to issue debentures to secure its repayment. But this power was not an independent object of the company. As Harman LJ put it: ‘borrowing is not an end in itself and must be for some purpose of the company’.25 The power was not expressed in terms to be exercisable only ‘for the purposes of the company’ but, following the reasoning of Buckley J in Re David Payne & Co Ltd26 the court held that the words necessarily had to be implied. The company had borrowed money from a bank and granted debentures to secure the loan. But the only business carried on by it was that of pig-breeding, which was a purpose not authorised by its memorandum of association. On the liquidation of the company, a question arose as to the [page 168] validity of the debentures. Harman LJ, who gave the leading judgment, after deciding that the power to borrow conferred by the memorandum was a mere ancillary power not an independent object, proceeded to cite27 the following passage from the speech of Lord Parker in Cotman v Brougham: A person who deals with a company is entitled to assume that a company can do everything which it is expressly authorized to do by

its memorandum of association, and need not investigate the equities between the company and its shareholders.28 This passage, it will be seen, closely echoes some of the language used by Buckley J in his judgment in the David Payne case. … Harman LJ went on to say: I would agree that if the defendant bank did not know what the purpose of the borrowing was it need not enquire, but it did know, and I can find nothing in Cotman v Brougham to protect it notwithstanding that knowledge. (My emphasis.)29 The words ‘it need not enquire’, in my opinion, make it clear that Harman LJ did not regard the borrowing as having been beyond the capacity of the company. However, he then went on to point out that the David Payne decision shows that the protection afforded by the principle stated by Lord Parker affords no protection to a lender who knows that the money is intended to be misapplied. The absence of any express provision in the company’s memorandum of association requiring the loan to be applied for the purposes of the company, in his judgment, did not improve the bank’s position, since such a provision would fall to be implied anyway. He concluded: This borrowing was not for a legitimate purpose of the company; the bank knew it and therefore cannot rely on its debenture. (My emphasis.)30 As I read his judgment, therefore, Harman LJ reached his decision that the bank could not rely on the debentures following the ratio of the David Payne decision, that is to say, not because they had been granted by the company in excess of its corporate capacity, but because the bank knew that the directors of the company, in purporting to grant them, had exceeded the authority conferred on them by the company by entering into the transaction for purposes other than the company’s corporate purpose. Russell LJ, in a very short judgment, reached the same conclusion but by rather a different route from that of Harman LJ. As I read his judgment, his view was that the borrowing and execution of the debentures were ultra vires the company as a matter of corporate capacity because it was an

implicit condition attached to the power to borrow contained in the company’s memorandum that moneys should not be borrowed for use in an undertaking ultra vires the company. Since the sole undertaking of that company was the pig-breeding business, which was beyond the company’s corporate capacity, the loans taken for [page 169] use in that business were likewise inevitably beyond its corporate capacity. I read Russell LJ’s decision as being limited to the facts of that particular case and not in any way conflicting with my interpretation of the David Payne decision. It follows that, in my opinion, the decisions of this court in Re David Payne & Co Ltd and Re Introductions Ltd, on their true analysis, lend no support to [RSP’s] submission that the relevant transactions in the present case were beyond the corporate capacity of [RSP] simply because they were effected for improper purposes not authorised by its memorandum of association. … I also respectfully agree with the following observations made by Oliver J, after an extensive review of the authorities, in Re Halt Garage (1964) Ltd: I cannot help thinking, if I may respectfully say so, that there has been a certain confusion between the requirements for a valid exercise of the fiduciary powers of directors (which have nothing to do with the capacity of the company but everything to do with the propriety of acts done within that capacity), the extent to which powers can be implied or limits be placed, as a matter of construction, on express powers, and the matters which the court will take into consideration at the suit of a minority shareholder in determining the extent to which his interests can be overridden by a majority vote. These three matters, as it seems to me, raise questions which are logically quite distinct but which have sometimes been treated as if they demanded a single, universal answer leading to the conclusion that, because a power must not be abused, therefore, beyond the limit of propriety it does not exist.31

My conclusions from these authorities on these questions of principle may be summarised as follows. (1) The basic rule is that a company incorporated under the Companies Acts only has the capacity to do those acts which fall within its objects as set out in its memorandum of association or are reasonably incidental to the attainment or pursuit of those objects. Ultimately, therefore, the question whether a particular transaction is within or outside its capacity must depend on the true construction of the memorandum. (2) Nevertheless, if a particular act … is of a category which, on the true construction of the company’s memorandum, is capable of being performed as reasonably incidental to the attainment or pursuit of its objects, it will not be rendered ultra vires the company merely because in a particular instance its directors, in performing the act in its name, are in truth doing so for purposes other than those set out in its memorandum. Subject to any express restrictions on the relevant power which may be contained in the memorandum, the state of mind or knowledge of the persons managing the company’s affairs or of the persons dealing with it is irrelevant in considering questions of corporate capacity. (3) While due regard must be paid to any express conditions attached to or limitations on powers contained in a company’s memorandum (eg a power to borrow only up to a specified amount), the court will not ordinarily construe a statement in a memorandum that a particular power is exercisable ‘for the purposes of the company’ as a condition limiting the company’s corporate capacity to exercise the power: it will regard it as simply imposing a limit on the authority of the directors. … [page 170] (4) At least in default of the unanimous consent of all the shareholders … the directors of a company will not have actual authority from the company to exercise any express or implied power other than for the purposes of the company as set out in its memorandum of association. (5) A company holds out its directors as having ostensible authority to bind the company to any transaction which falls within the powers expressly or

impliedly conferred on it by its memorandum of association. Unless he is put on notice to the contrary, a person dealing in good faith with a company which is carrying on an intra vires business is entitled to assume that its directors are properly exercising such powers for the purposes of the company as set out in its memorandum. Correspondingly, such a person in such circumstances can hold the company to any transaction of this nature. (6) If, however, a person dealing with a company is on notice that the directors are exercising the relevant power for purposes other than the purposes of the company, he cannot rely on the ostensible authority of the directors and, on ordinary principles of agency, cannot hold the company to the transaction. … To sum up, my conclusions on the ultra vires point are these. The relevant transactions of 22 January 1969 were not beyond the corporate capacity of [RSP] and thus were not ultra vires in the proper sense of that phrase. However, the entering into the guarantee and, to the extent of the sum guaranteed, the debenture was beyond the authority of the directors, because they were entered into in furtherance of purposes not authorised by [RSP’s] memorandum. Despite this lack of authority, they might have been capable of conferring rights on Colvilles if Colvilles had not known of this lack of authority. Colvilles, however, did have such knowledge and so acquired no rights under these transactions. Even if the no due authorisation point discussed earlier in this judgment were not open to [RSP], because Mr Shenkman had duly declared his interest at the relevant board meeting, [RSP] could disclaim these transactions, which its directors had carried out on its behalf, as being unauthorised, inasmuch as they were carried out for improper purposes. The practical relevance of the no due authorisation point discussed in an earlier section of this judgment is that it enables [RSP] also to disclaim the borrowing of the £ 401,448 and the whole (as opposed to part only) of the security given by the debenture (as having been in each case entered into by the directors without its authority) and also to attack the validity of the receiver’s appointment. …

Browne-Wilkinson LJ In my judgment, much of the confusion that has crept into the law flows from the use of the phrase ‘ultra vires’ in different senses in different contexts. The reconciliation of the authorities can only be achieved if one

first defines the sense in which one is using the words ‘ultra vires’. Because the literal translation of the words is ‘beyond the powers’, there are many cases in which the words have been applied to transactions which, although within the capacity of the company, are carried out otherwise than through the correct exercise of the powers of the company by its officers; indeed, that is the sense in which the judge seems to have used the words in this case. … [I]n my judgment, the use of the phrase [page 171] ‘ultra vires’ should be restricted to those cases where the transaction is beyond the capacity of the company and therefore wholly void. A company, being an artificial person, has no capacity to do anything outside the objects specified in its memorandum of association. If the transaction is outside the objects, in law it is wholly void. But the objects of a company and the powers conferred on a company to carry out those objects are two different things.32 … In my judgment, for this purpose the position of a company is analogous to that of a human being who has fiduciary powers. … The critical distinction is, therefore, between acts done in excess of the capacity of the company on the one hand and acts done in excess or abuse of the powers of the company on the other. If the transaction is beyond the capacity of the company it is in any event a nullity and wholly void; whether or not the third party had notice of the invalidity, property transferred or money paid under such a transaction will be recoverable from the third party. If, on the other hand, the transaction (although in excess or abuse of powers) is within the capacity of the company, the position of the third party depends on whether or not he had notice that the transaction was in excess or abuse of the powers of the company. As between the shareholders and the directors, for most purposes it makes no practical difference whether the transaction is beyond the capacity of the company or merely in excess or abuse of its power: in either event the shareholders will be able to restrain the carrying out of the transaction or hold liable those who have carried it out. Only if the question of ratification

by all the shareholders arises will it be material to consider whether the transaction is beyond the capacity of the company since it is established that, although all the shareholders can ratify a transaction within the company’s capacity, they cannot ratify a transaction falling outside its objects. In this judgment I therefore use the words ‘ultra vires’ as covering only those transactions which the company has no capacity to carry out, ie those things the company cannot do at all as opposed to those things it cannot properly do. The two badges of a transaction which is ultra vires in that sense are (1) that the transaction is wholly void and (consequentially) (2) that it is irrelevant whether or not the third party had notice. … I summarise my conclusions as follows. (1) To be ultra vires, a transaction has to be outside the capacity of the company, not merely in excess or abuse of the powers of the company. (2) The question whether a transaction is outside the capacity of the company depends solely on whether, on the true construction of its memorandum of association, the transaction is capable of falling within the objects of the company as opposed to being a proper exercise of the powers of the company. (3) Notwithstanding the fact that the provision authorising the company to enter into the particular transaction is found in the objects clause and there is a provision requiring each paragraph to be construed as a separate object, such provision may be merely a power (and not an object) if either it is incapable of existing as a [page 172] separate object or it can only be construed as a power ancillary to the other objects in the strict sense. (4) If a transaction falls within the objects (and therefore the capacity) of the company, it is not ultra vires the company and accordingly it is not absolutely void. (5) If a company enters into a transaction which is intra vires (as being within its capacity) but in excess or abuse of its powers, such transaction will be set aside at the instance of the shareholders. (6) A third party, who has notice — actual or constructive

— that a transaction, although intra vires the company, was entered into in excess or abuse of the powers of the company, cannot enforce such transaction against the company and will be accountable as constructive trustee for any money or property of the company received by the third party. (7) The fact that a power is expressly or impliedly limited so as to be exercisable only ‘for the purposes of the company’s business’ (or other words to that effect), does not put a third party on inquiry whether the power is being so exercised, ie such provision does not give him constructive notice of excess or abuse of such power. Applying those principles to the present case, in my judgment, no question of ultra vires arises.

Comments 9.5.1 See Radan, Gooley, and Vickovich at 9.61–9.63. 9.5.2 It should be noted that this area of the law is now almost completely regulated by statutory provisions such as ss 124 and 125 of the Corporations Act 2001 (Cth). These statutory provisions provide that a company has the legal capacity and powers of an individual and that an act of the company that is beyond a stated object in its constitution will not be invalid.

1.

[1884] 2 QB 482.

2. 3.

Clements v London and North Western Railway Co [1894] 2 QB 482 at 490. Clements v London and North Western Railway Co [1894] 2 QB 482 at 492.

4. 5.

De Francisco v Barnum [1894] 2 QB 430 at 495. (1890) 43 Ch D 165.

6. 7.

[1894] 2 QB 482. Harris v Wall (1847) 154 ER 51 at 55.

8. 9.

(1872) 41 LJ Ch 436. 19th edn, 2006, pp 1512–13.

10. 11.

[1978] 3 All ER 449 at 486. (1890) 45 Ch D 430.

12.

(1914) 30 TLR 342.

13.

29th edn, 2004.

14. 15.

Vol 1, p 581 (paras 8-004, 8-005). [1935] 1 KB 110.

16. 17.

[1966] Ch 71. Reported only at (1967) 111 Sol Jo 715 and reversed on other grounds by the Court of Appeal [1968] 3 All ER 513, [1969] 1 QB 699.

18. 19.

[1913] 1 KB 520. [1966] Ch 71.

20. 21.

[1935] 1 KB 110. Re Horsley & Weight Ltd [1982] Ch 442 at 448.

22. 23.

Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1982] Ch 478 at 499. Ashbury Rly Carriage and Iron Co (Ltd) v Riche (1875) LR 7 HL 653 at 693.

24. 25.

Re David Payne & Co Ltd, Young v David Payne & Co Ltd [1904] 2 Ch 608 at 613. Re Introductions Ltd [1970] Ch 199 at 210.

26. 27.

[1904] 2 Ch 608 at 612. Re Introductions Ltd [1970] Ch 199 at 210.

28. 29.

Cotman v Brougham [1918] AC 514 at 521. Re Introductions Ltd [1970] Ch 199 at 210.

30. 31.

Re Introductions Ltd [1970] Ch 199 at 211. Re Halt Garage (1964) Ltd [1982] 3 All ER 1016 at 1029–30.

32.

Cotman v Brougham [1918] AC 514 at 520, 522.

[page 173]

Part III: Terms of a Contract

[page 175]

10 EXPRESS TERMS

INTRODUCTION 10.1 This chapter deals with the terms of a contract that are expressly included by the contracting parties. Many contractual disputes before the courts require a decision about what the parties have actually agreed — in other words, what terms have been expressly incorporated into the contract. In such cases courts wish to determine the express terms because they represent the true intentions of the parties. There are several ways in which terms may be incorporated into a contract and the test is an objective one. Where the contract is entered into orally, it will often be necessary to consider whether statements made by the parties in negotiations leading to the formation of the contract are express terms or mere representations. Express terms are statements that are promissory in nature and give rise to contractual obligations because they indicate what the parties need to do under the contract. Mere representations are statements that are nonpromissory in nature and do not create contractual obligations because they are generally only ‘representational’ or descriptive of the subject matter of the contract. The issue of whether a statement made in the course of negotiations is a term or a mere representation is illustrated in Ellul & Ellul v Oakes (1972) 3 SASR 377 (see 10.2C) and Oscar Chess Ltd v Williams [1957] 1 All ER 325 (see 10.3C). The most common way in which terms are expressly incorporated into a written contract is by signature. It is generally understood that a party signing a contractual document is indicating that they have read and understood the

document and consented to its terms. This fundamental rule, which universally gives certainty to contractual dealings, is known as the ‘signature’ rule and is illustrated in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (see 10.4C). However, the rule may be displaced in cases where the signature is procured through fraud, misrepresentation, or some other vitiating factor. This may be seen in Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 (see 10.5C). Terms may also be incorporated into a contract by notice. This manner of incorporation is especially important in cases involving unsigned documents or signs, which affect many transactions involving travel or entry to premises. It is often the case that one party will seek to rely on an exclusion or limitation clause that purports to limit or exclude their liability if the contract is breached in some way. In order to hold that the clause is incorporated as an express term, courts will require evidence that notice of the term has been given by the party seeking to rely on it before the contract was formed. They will also require that the notice be given in a way that may be considered reasonable. Of course, if the other party has actual knowledge of the term, notice will be deemed to have been given. However, where actual knowledge is [page 176] not evident, the reasonableness or otherwise of the notice will depend on the nature of the document or sign in which the clause appears. If the document or sign appears objectively to be contractual in nature, mere delivery of the document containing the clause will be considered sufficiently reasonable. This is illustrated in Parker v South Eastern Railway Co (1877) 2 CPD 416 (see 10.6C), a case involving a bill of lading. However, if it is non-contractual in nature, notice will have to be given in some expressly overt and deliberate way. The case of Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 (see 10.7C) focused on the reasonable notice requirement where the term appeared on an unsigned ticket at the entry to premises. Where contracting parties have an ongoing commercial relationship typically involving a series of similar transactions, it is often the case that they use their own documents and forms that provide some confirmation and evidence of their agreement. In such cases one party may often not be aware

that the other party’s documents have changed over time to include new or amended terms. If the terms are contested, one party may argue that they have been incorporated as express terms by prior dealings — in other words, courts will need to decide whether the party affected by the term, very often an exclusion clause, may be deemed to have been aware of the term and consented to its incorporation by virtue of the parties’ prior dealings. The factors to be considered by a court in coming to such a decision may be seen in La Rosa v Nudrill Pty Ltd [2013] WASCA 18 (see 10.8C). Any question of incorporation of terms in written documents must take account of the parol evidence rule. This fundamental rule provides certainty to written contracts because it states that, where a contract is in writing and is intended to be fully in writing, extrinsic evidence cannot be introduced that will have the effect of adding to, subtracting from, or varying the language of the written contract. The operation of the rule is illustrated by State Rail Authority of NSW v Heath Outdoor Ltd (1986) 7 NSWLR 170 (see 10.9C). However, courts have recognised important exceptions to the rule, one of which is evidence of a prior collateral contract. An oral promise made before or in conjunction with the execution of a written contract may be enforceable if the signing of the contract provides consideration for the promise. The issue of whether a pre-contractual statement constitutes a collateral contract is addressed in J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 (see 10.10C). For a collateral contract to be enforceable, it must be promissory in nature and must not be inconsistent with any express term of the written contract, as explained in Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 (see 10.11C).

TERMS AND MERE REPRESENTATIONS 10.2C

Ellul & Ellul v Oakes (1972) 3 SASR 377

Court: Full Court of the Supreme Court of South Australia Facts: Oakes listed his house for sale with a real estate agent. The agent gave him a Multiple Listing form that recorded certain particulars about the property. In answer to a question about whether the property was sewered, Oakes crossed out the word

‘septic’ in the words ‘septic/sewer’ and inscribed a ditto sign adjacent to the word ‘sewer’. He signed the form. His agent then added the word ‘yes’ in the belief that the house was connected to the sewer. The house was in fact served by a septic tank, even though sewer connection was available in the area. After inspecting the property [page 177] the Elluls agreed to buy it for £11,300 and signed a ‘sale note’ that was expressed to be ‘subject to the vendor’s approval’. The sale note was never signed by Oakes, but the conveyance was completed nevertheless and the Elluls became registered proprietors. After some months the new owners realised the property was not connected to the sewer. Claiming they would not have bought the property for the contract price if they had known about the septic tank, they sued Oakes for damages for breach of warranty and for negligent misrepresentation. The Local Court held that the purchasers had relied on the statement about the sewer connection on the form. However, damages were not awarded because there had been no agreement in relation to the sewer. The Elluls appealed to the Full Court. Issue: The issue before the Full Court was whether the vendor’s statement on the form to the effect that the house was sewered, amounted to a mere representation or to a term of the contract that could ground an action for breach of warranty. Decision: The Full Court (Bray CJ, Zelling and Wells JJ) held unanimously that the Elluls’ appeal should be allowed because the statement on the form amounted to a warranty forming part of the contract. Breach of the warranty resulted in an award of damages representing the cost of connecting the house to the sewer. However, the claim for negligent misrepresentation failed because the Elluls had failed to establish the requisite damage — namely, that the house was worth less than they had paid. Extract: The extracts from the judgment of Zelling J are indicative of

the Full Court’s reasoning on the issue of breach of warranty.

Zelling J The learned [trial] Judge thought that [the Elluls] by their contention were attempting to do what the House of Lords in Heilbut, Symons & Co v Buckleton1 forbad, namely the turning of an innocent misrepresentation into a warranty so as to provide a remedy. In my opinion this approach was misconceived. The position, as is set out by the decisions of the Court of Appeal in Oscar Chess Ltd v Williams2 and Dick Bentley Products Ltd v Harold Smith (Motors) Ltd3 is this, namely, that as Lord Denning said …: If a representation is made in the course of dealings from a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that it was intended to be acted upon and was in fact acted upon.4 [page 178] That in my opinion is the position here. [Oakes] made the representation through the Multiple Listing Bureau to induce a purchaser, and in this case [the Elluls], to buy his property and succeeded thereby in doing so, and this provided a prima facie case which [Oakes] had to meet. The only real answer could be if the inspection which took place afterwards displaced the effect of that warranty. The various questions which have to be considered are well set out … as follows: In endeavouring to reach a conclusion on this point, the Courts can be said to take into account a number of factors. First, they may have regard to the time which elapsed between the time of making the statement and the final manifestation of agreement; if the interval is a long one, this points to a representation. Secondly, they

may consider the importance of the statement in the minds of the parties; a statement which is important is likely to be classed as a term of the contract. Thirdly, if the statement was followed by the execution of a formal contract in writing, it will probably be regarded as a representation should it not be incorporated in the written document. Finally, where the maker of the statement is, visa-vis the other party, in a better position to ascertain the accuracy of the statement, the Courts will tend to regard it as a contractual term.5 But all of these factors are at best only secondary guides, and they are subsidiary to the main test of contractual intention, that is, whether there is evidence of an intention by one or both parties that there should be contractual liability in respect of the accuracy of the statement. The question therefore is: On the totality of evidence, must the person making the statement be taken to have warranted its accuracy, ie promised to make it good? This overriding principle was laid down in Heilbut, Symons & Co v Buckleton. The question here, therefore, should have been: whether on the totality of the evidence should [Oakes], the person making the statement, be taken to have warranted its accuracy, in other words did he promise to make it good. In my opinion he did and it is not a question of what he intended or of any consensus of minds but of what effect that statement would have on the mind of a reasonable person so as to make him think that such a representation was contractual in its nature, in other words that this would form part of the basis of the contract hereafter to be entered into. In Erskine v Adeane Mellish LJ said: No doubt, as a rule of law, if parties enter into negotiations affecting the terms of a bargain, and afterwards reduce it into writing, verbal evidence will not be admitted to introduce additional terms into the agreement; but, nevertheless, what is called a collateral agreement, where the parties have entered into an agreement for a lease or for any other deed under seal, may be made in consideration of one of the parties executing that deed, unless, of course, the stipulation contradicts the terms of the deed itself.6 In following the Oscar Chess and Dick Bentley cases I do not want to be

taken as assenting to the remainder of the observations of the Master of the Rolls in the Dick Bentley Case that the maker of the representation can rebut the prima facie inference by showing that [page 179] the misrepresentation was innocent, that he was innocent of fault in making it and it would not be reasonable in the circumstances for him to be bound by it. I find myself in respectful agreement with the [following] comment on this case … : It is not the function of the law of contract to absolve a defendant if he has behaved as a reasonable man would have done, but to hold him to his promises and make him answerable in damages if he has not. The issue whether an assertion is to be construed as a legally binding promise cannot depend upon whether the man who made it was well-meaning or irresponsible, saint or sinner.7 No doubt the considerations referred to by the Master of the Rolls are some of the considerations which, in some cases at least, one would take into account in deciding whether or not at the end of the day the plaintiff had made out his case in warranty but they are not answers to the claim of a plaintiff in these circumstances as a matter of law. They are simply circumstances of fact which one might, if one encountered them in a particular case, weigh along with others in deciding whether or not the plaintiff had ultimately discharged the onus which lay upon him. The only aspect of this matter which troubles me is the length of time which took place between [the Elluls] reading [the form] and the time at which they entered into the contract, albeit an oral one, to purchase the property. Nevertheless time is only one aspect of this matter and the real question is whether any subsequent conduct or actions displaced the representation contained in [the form] in the minds of [the Elluls] or gave them an opportunity, which they neglected, of checking the true facts. I do not think either of these is the position here.

[page 180]

Comment 10.2.1 See Radan, Gooley, and Vickovich at 10.9–10.12 and 10.20. 10.3C

Oscar Chess Ltd v Williams [1957] 1 All ER 325

Court: Court of Appeal in England Facts: In 1955 Williams traded in his Morris car, which he honestly thought to be a 1948 model, for a new Hillman Minx from car dealers Oscar Chess Ltd. The Morris had been bought for £300 by Williams’s mother in 1954, with the registration papers showing the car had first been registered in 1948. The transaction was carried out between Williams and an employee of Oscar Chess Ltd who was familiar with Williams’s car. The employee also believed it to be a 1948 model and, after checking the registration papers and a professional guide book, arranged for Williams to be credited the amount of £290 on the trade-in. A few months after the trade-in Oscar Chess Ltd checked the chassis and engine numbers with the manufacturer and was advised it was in fact a 1939 model. The car dealers took legal action against Williams on the basis that they would not have paid more than £175 had they been informed of the true age of the car. They claimed the sum of £115 as damages for breach of warranty, claiming it was a condition of the contract that the car was a 1948 model or, alternatively, that there had been a collateral warranty to that effect. They were successful, but Williams appealed. Issues: The issues before the Court of Appeal were whether Williams’s assertion that the car was a 1948 model amounted to an express term of the contract and, if so, whether that term had been breached. Decision: In a majority decision the Court of Appeal (Denning and

Hodson LJJ; Morris LJ dissenting) ruled the statement about the car’s age was not a contractual term, but an innocent misrepresentation. Extract: The extracts from the judgment of Denning LJ show how the Court of Appeal majority decided that from an objective viewpoint, Williams could not have intended the statement to be a term of the contract. He had innocently relied on the registration papers, while the car dealers had the expertise and the opportunity to verify the statement for themselves.

Denning LJ I entirely agree with the [trial] judge that both parties assumed that the Morris car was a 1948 model and that this assumption was fundamental to the contract. This does not prove, however, that the representation was a term of the contract. The assumption was based by both of them on the date given in the registration book as the date of first registration. They both believed that the car was a 1948 model, whereas it was only a 1939 one. They were both mistaken and their mistake was of fundamental importance. [page 181] The effect of such a mistake is this: It does not make the contract a nullity from the beginning, but it does in some circumstances enable the contract to be set aside in equity. If the buyer had come promptly, he might have succeeded in getting the whole transaction set aside in equity on the ground of this mistake,8 but he did not do so and it is now too late for him to do it.9 His only remedy is in damages, and to recover these he must prove a warranty. In saying that he must prove a warranty, I use the word ‘warranty’ in its ordinary English meaning to denote a binding promise. Everyone knows what a man means when he says, ‘I guarantee it’, or ‘I warrant it’, or ‘I give you my word on it’. He means that he binds himself to it. That is the meaning which it has borne in English law for three hundred years. …

During the last hundred years, however, the lawyers have come to use the word ‘warranty’ in another sense. They use it to denote a subsidiary term in a contract as distinct from a vital term which they call a ‘condition’. In so doing they depart from the ordinary meaning, not only of the word ‘warranty’, but also of the word ‘condition’. There is no harm in their doing this, so long as they confine this technical use to its proper sphere, namely, to distinguish between a vital term, the breach of which gives the right to treat the contract as at an end, and a subsidiary term which does not. The trouble comes, however, when one person uses the word ‘warranty’ in its ordinary meaning and another uses it in its technical meaning. … These different uses of the word seem to have been the source of confusion in the present case. The judge did not ask himself, ‘Was the representation (that the car was a 1948 Morris car) intended to be a warranty?’ He asked himself, ‘Was it fundamental to the contract?’ He answered it by saying that it was fundamental, and, therefore, it was a condition and not a warranty. By concentrating on whether it was fundamental, he seems to me to have missed the crucial point in the case which is whether it was a term of the contract at all. The crucial question is: Was it a binding promise or only an innocent misrepresentation? The technical distinction between a ‘condition’ and a ‘warranty’ is quite immaterial in this case, because it is far too late for the buyer to reject the car. He can, at best, only claim damages. The material distinction here is between a statement which is a term of the contract and a statement which is only an innocent misrepresentation. This distinction is best expressed by the ruling of Holt CJ,10 ‘Was it intended as a warranty or not?’, using the word ‘warranty’ there in its ordinary English meaning: because it gives the exact shade of meaning that is required. It is something to which a man must be taken to bind himself. In applying this test, however, some misunderstanding has arisen by the use of the word ‘intended’. It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended. That is a mistake. Lord Moulton made it quite clear in Heilbut Symons & Co v Buckleton that ‘[T]he intention of the parties can only be deduced from the totality of the evidence …’.11 The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts.

[page 182] If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. And this, when the facts are not in dispute, is a question of law. … When the seller states a fact which is or should be within his own knowledge and of which the buyer is ignorant, intending that the buyer should act on it and he does so, it is easy to infer a warranty. … So also if the seller makes a promise about something which is or should be within his own control. … If, however, the seller, when he states a fact, makes it clear that he has no knowledge of his own but has got his information elsewhere, and is merely passing it on, it is not so easy to imply a warranty. Such a case [is] Routledge v McKay,12 where the seller stated that a motor cycle combination was a 1942 model, and pointed to the corroboration of that statement to be found in the registration book, and it was held that there was no warranty. Turning now to the present case, much depends on the precise words that were used. If the seller says: ‘I believe the car is a 1948 Morris. Here is the registration book to prove it’, there is clearly no warranty. It is a statement of belief, not a contractual promise. If, however, the seller says: ‘I guarantee that it is a 1948 Morris. This is borne out by the registration book, but you need not rely solely on that. I give you my own guarantee that it is’, there is clearly a warranty. The seller is making himself contractually responsible, even though the registration book is wrong. … What is the proper inference from the known facts? It must have been obvious to both [parties] that [Williams] had himself no personal knowledge of the year when the car was made. He only became owner after a great number of changes. He must have been relying on the registration book. It is unlikely that such a person would warrant the year of manufacture. The most that he would do would be to state his belief, and then produce the registration book in verification of it. In these circumstances the intelligent bystander would, I suggest, say that [Williams] did not intend to bind himself so as to warrant that the car was a 1948 model. If [Williams] was asked to pledge himself to it, he would at

once have said ‘I cannot do that. I have only the log-book to go by, the same as you’. The [trial] judge seems to have thought that there was a difference between written contracts and oral contracts. … I agree that … [if] an oral representation is afterwards recorded in writing, it is good evidence that it was intended as a warranty. If it is not put into writing, it is evidence against a warranty being intended; but it is by no means decisive. There have been many cases … where the courts have found an oral warranty collateral to a written contract. When, however, the purchase is not recorded in writing at all, it must not be supposed that every representation made in the course of the dealing is to be treated as a warranty. The question then is still: Was it intended as a warranty?

[page 183]

Comment 10.3.1 See Radan, Gooley, and Vickovich at 10.15–10.16.

THE EFFECT OF SIGNING A CONTRACT 10.4C Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Court: High Court of Australia Facts: Alphapharm Pty Ltd purchased a flu vaccine from Ebos Group Ltd. The vaccine was to be stored after its importation from the United Kingdom and then transported to Alphapharm’s customers by Finemores, later known as Toll (FGCT) Pty Ltd. The carriage contract was entered into between Finemores and Richard Thomson Pty Ltd, as agent for Alphapharm. On the front of the relevant contractual document, which was headed ‘Application for Credit’,

just above the place where it was signed there appeared the words: ‘Please read “Conditions of Contract” (Overleaf) prior to signing’. Richard Thomson did not read the relevant conditions, nor were they mentioned in any conversation between the parties. One of the conditions was clause 6, an exclusion clause protecting Finemores from liability in the event of damage to the vaccine during its transportation to Alphapharm’s customers. The vaccine was destroyed in transit because it was stored at too low a temperature. Issue: The issue before the High Court was whether clause 6 formed part of the carriage contract, thereby excluding Finemores from liability for the destruction of the vaccine. Decision: The High Court of Australia (Gleeson CJ, Gummow, Hayne, Callinan, and Heydon JJ) unanimously held that clause 6 formed part of the contract. Extract: The extract from the court’s joint judgment sets out the relevant principles on the effect of signing a contractual document.

Gleeson CJ, Gummow, Hayne, Callinan, and Heydon JJ Consistent with [the] objective approach to the determination of the rights and liabilities of contracting parties is the significance which the law attaches to the signature (or execution) of a contractual document. In Parker v South Eastern Railway Company, Mellish LJ drew a significant distinction as follows: In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents. The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case [page 184]

there must be evidence independently of the agreement itself to prove that the defendant has assented to it.13 More recently, in words that are apposite to the present case, in Wilton v Farnworth Latham CJ said: In the absence of fraud or some other of the special circumstances of the character mentioned, a man cannot escape the consequences of signing a document by saying, and proving, that he did not understand it. Unless he was prepared to take the chance of being bound by the terms of the document, whatever they might be, it was for him to protect himself by abstaining from signing the document until he understood it and was satisfied with it. Any weakening of these principles would make chaos of every-day business transactions.14 In Oceanic Sun Line Special Shipping Company Inc v Fay, Brennan J said: If a passenger signs and thereby binds himself to the terms of a contract of carriage containing a clause exempting the carrier from liability for loss arising out of the carriage, it is immaterial that the passenger did not trouble to discover the contents of the contract.15 It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it. The statements in the above authorities accord with the well-known principle stated by Scrutton LJ in L’Estrange v F Graucob Ltd that ‘[w]hen a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not’.16 Scrutton LJ, in turn, was repeating the substance of what had been said by Mellish LJ in Parker v South Eastern Railway Company.17 The principle was applied in

Foreman v Great Western Railway Company. A consignor of cattle sent them for transportation by a railway company. They were put in the charge of a drover, who could not read. The drover signed a contract of carriage which contained an exclusion clause. The drover’s employer was held to be bound by the clause. The Exchequer Division said that ‘the plaintiff who sends the [illiterate] servant to sign the document is in no better or worse position than if he had signed it himself without [page 185] reading it’.18 In his lecture published as ‘Form and Substance in Legal Reasoning: The Case of Contract’, Professor Atiyah posed, with reference to L’Estrange v Graucob, the question why signatures are, within established limits, regarded as conclusive. He answered: A signature is, and is widely recognized even by the general public as being a formal device, and its value would be greatly reduced if it could not be treated as a conclusive ground of contractual liability at least in all ordinary circumstances.19 Professor Atiyah added: However, what is, I think, less clear is what is the underlying reason of substance in this kind of situation. The usual explanation for holding a signature to be conclusively binding is that it must be taken to show that the party signing has agreed to the contents of the document; but another possible explanation is that the other party can be treated as having relied upon the signature. It thus may be a mistake to ask, as HLA Hart once asked, whether the signature is merely conclusive evidence of agreement, or whether it is itself a criterion of agreement.20 These themes appeared in the judgment of this Court in Petelin v Cullen.21 There, the Court upheld a plea of non est factum. Under the common law rules, a plea of non est factum was a plea of the general issue which put in issue that the defendant had executed the deed alleged in its declaration.22

In their joint judgment in Petelin, Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ said: The principle which underlies the extension of the plea to cases in which a defendant has actually signed the instrument on which he is sued has not proved easy of precise formulation. The problem is that the principle must accommodate two policy considerations which pull in opposite directions: first, the injustice of holding a person to a bargain to which he has not brought a consenting mind; and, secondly, the necessity of holding a person who signs a document to that document, more particularly so as to protect innocent persons who rely on that signature when there is no reason to doubt its validity. The importance which the law assigns to the act of signing and to the protection of innocent persons who rely upon a signature is readily discerned in the statement that the plea is one ‘which must necessarily be kept within narrow limits’ … and in the qualifications attaching to the defence which are designed to achieve this objective.23 [page 186] The importance which, for a very long time,24 the common law has assigned to the act of signing is not limited to contractual documents. Wilton v Farnworth was not a contract case. The passage from the judgment of Latham CJ quoted above is preceded by a general statement that, where a man signs a document knowing that it is a legal document relating to an interest in property, he is in general bound by the act of signature.25 Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief. In most common law jurisdictions, and throughout Australia, legislation has been enacted in recent years to confer on courts a capacity to ameliorate in individual cases hardship caused by the strict application of

legal principle to contractual relations. As a result, there is no reason to depart from principle, and every reason to adhere to it, in cases where such legislation does not apply, or is not invoked.26 To speak of the operation of the law of contract with respect to the signature of the document containing cl 6 requires attention both to the significance attached by the law to the presence of the signature and also to the absence of any grounds, such as a plea of non est factum, which at common law would render the contract void and of any grounds, such as misrepresentation, which might attract equitable relief, or which might elicit curial dispensation under a statutory regime. … An application of settled principle in the present case leads to the conclusion that the terms and conditions on the reverse of the Application for Credit formed part of the contract governing the storage and transportation of the goods. The reasoning of the primary judge, accepted by the Court of Appeal, was based upon the proposition that, in order for those terms and conditions to be made part of the contract, it was necessary for Finemores to establish that it had done what was reasonably sufficient to give Richard Thomson notice of the terms and conditions (the major premise), and the further proposition that Finemores had not done what was reasonably sufficient to give Richard Thomson such notice (the minor premise). It would be possible to dispose of the appeal by disagreeing with the minor premise. What more Finemores could have done to give Richard Thomson notice of the terms and conditions than requiring their representative to sign a document, and to place his signature immediately below a request that he read the conditions on the reverse side of the document before signing, is difficult to imagine. [page 187] Of wider importance, however, is the major premise. If correct, it involves a serious qualification to the general principle concerning the effect of signing a contract without reading it. The proposition appears to be that a person who signs a contractual document without reading it is

bound by its terms only if the other party has done what is reasonably sufficient to give notice of those terms. If the proposition is limited to some terms and not others, it is not easy to see what the discrimen might be. It appears from the reasoning of the primary judge and the Court of Appeal that the proposition was given a narrower focus, and was limited to exclusion clauses, or, perhaps, exclusion clauses which are regarded by a court as unusual and onerous. The present happens to be a case about exclusion clauses, but there is no apparent reason why the principle, if it exists, should apply only to them. Nor is the criterion by which a court might declare a contractual provision to be unusual or onerous always easy to identify. The origin of the proposition, clearly enough, is in the principles that apply to cases, such as ticket cases, in which one party has endeavoured to incorporate in a contract terms and conditions appearing in a notice or an unsigned document. When an attempt is made to introduce the concept of sufficient notice into the field of signed contracts, there is a danger of subverting fundamental principle based on sound legal policy. There are circumstances in which it is material to ask whether a person who has signed a document was given reasonable notice of what was in it. Cases where misrepresentation is alleged, or where mistake is claimed, provide examples. No one suggests that the fact that a document has been signed is for all purposes conclusive as to its legal effect. At the same time, where a person has signed a document, which is intended to affect legal relations, and there is no question of misrepresentation, duress, mistake, or any other vitiating element, the fact that the person has signed the document without reading it does not put the other party in the position of having to show that due notice was given of its terms. Furthermore, it may be asked, where would this leave a third party into whose hands the document might come? In L’Estrange v Graucob, Scrutton LJ said that the problem in that case was different from what he described as ‘the railway passenger and cloak-room ticket cases, such as Richardson, Spence & Co v Rowntree’,27 where ‘there is no signature to the contractual document, the document being simply handed by the one party to the other’. His Lordship said: In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and

conditions. These cases have no application when the document has been signed.28 In the same case Maugham LJ,29 who agreed with Scrutton LJ, referred to three possible circumstances in which the party who signed the document might not have been bound by its terms. The first was if the document signed was not a contract but merely a [page 188] memorandum of a previous contract which did not include the relevant term. The second was a case of non est factum. The third was a case of misrepresentation. If there is a claim of misrepresentation, or non est factum, or if there is an issue as to whether a document was intended to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief, then even in the case of a signed document it may be material to know whether a person who has signed it was given sufficient notice of its contents. The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document. L’Estrange v Graucob explicitly rejected an attempt to import the principles relating to ticket cases into the area of signed contracts. It was not argued, either in this Court or in the Court of Appeal, that L’Estrange v Graucob should not be followed. … In this case the printed conditions on the Application for Credit formed part of the contract of storage and transportation.

Comments 10.4.1 See Radan, Gooley, and Vickovich at 10.26–10.31.

10.4.2 For a discussion of this case, see E Peden and J W Carter, ‘Incorporation of Terms by Signature: L’Estrange Rules!’ (2005) 21 Journal of Contract Law 96.

MISREPRESENTATION AND THE SIGNATURE RULE 10.5C

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805

Court: Court of Appeal in England Facts: Curtis took a white satin wedding dress to the Chemical Cleaning & Dyeing Co for cleaning. She was asked to sign a piece of paper titled ‘Receipt’ by the company’s shop employee. When she inquired why her signature was required, Curtis alleged she was told it was because the company did not accept any liability for certain risks, one of which was damage to the sequins and beads on the dress. She signed the document, but later discovered it contained the following words: ‘This or these articles is accepted on condition that the company is not liable for any damage howsoever arising, or delay.’ When she picked up the dress after cleaning there was a stain on it that the company’s employees could not explain. The company denied negligence and relied on the clause appearing on the ‘Receipt’ document to exclude any liability for the damage to Curtis’s wedding dress. She sued for damages. [page 189] Issue: The issue before the Court of Appeal was whether a clause purporting to exclude liability in a signed contract could be enforced in view of misrepresentation as to the meaning of the clause. Decision: The Court of Appeal (Somervell, Singleton, and Denning LJJ) unanimously rejected the company’s appeal and upheld the damages verdict in favour of Curtis.

Extract: The extracts from the judgment of Denning LJ are significant in regard to the exception to the signature rule on the grounds of misrepresentation or fraud.

Denning LJ This case is of importance because of the many cases nowadays when people sign printed forms without reading them, only to find afterwards that they contain stringent clauses exempting the other side from their common law liabilities. In every such case it must be remembered that, if a person wishes to exempt himself from a liability which the common law imposes on him, he can only do it by an express stipulation brought home to the party affected, and assented to by him as part of the contract.30 If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation.31 But what is a sufficient misrepresentation for this purpose? … In my opinion any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough. If the false impression is created knowingly, it is a fraudulent misrepresentation; if it is created unwittingly, it is an innocent misrepresentation; but either is sufficient to disentitle the creator of it to the benefit of the exemption. … When one party puts forward a printed form for signature, failure by him to draw attention to the existence or extent of the exemption clause may in some circumstances convey the impression that there is no exemption at all, or at any rate not so wide an exemption as that which is in fact contained in the document. The present case is a good illustration. [Curtis] said in evidence: ‘When I was asked to sign the document I asked why? The assistant said I was to accept any responsibility for damage to beads and sequins. I did not read it all before I signed it’. In those circumstances, by failing to draw attention to the width of the exemption clause, the assistant created the false impression that the exemption only related to the beads and sequins, and that it did not extend

to the material of which the dress was made. It was done perfectly innocently, but nevertheless a false impression was created. It was probably not sufficiently precise and unambiguous to create an estoppel,32 but nevertheless it was a sufficient misrepresentation to disentitle [Chemical Cleaning & Dyeing Co] from relying on the exemption, except in regard to beads and sequins. [page 190] In the present case [Curtis] knew, from what the assistant said, that the document contained conditions. If nothing was said she might not have known it. In that case the document might reasonably be understood to be, like a boot repairer’s receipt, only a voucher for the customer to produce when collecting the goods, and not understood to contain conditions exempting the cleaners from their common law liability for negligence. In that case it would not protect the cleaners.33 I say this because I do not wish it to be supposed that the cleaners would have been better off if the assistant had simply handed over the document to the customer without asking her to sign it; or if the customer were not so inquiring as [Curtis], but were an unsuspecting person who signed whatever she was asked without question. In those circumstances the conduct of the cleaners might well be such that it conveyed the impression that the document contained no conditions, or, at any rate, no condition exempting them from their common law liability, in which case they could not rely on it.

[page 191]

Comment 10.5.1 See Radan, Gooley, and Vickovich at 10.35–10.38.

INCORPORATION OF TERMS BY REASONABLE NOTICE 10.6C

Parker v South Eastern Railway Co (1877) 2 CPD 416

Court: Court of Appeal in England Facts: Parker and Gabell left their bags in the cloak rooms of the South Eastern Railway Co’s station. Parker paid his money and received a ticket that contained a date and number on one side and some writing on the other. He was aware of the existence of the writing, but did not read what it contained. One of the printed matters was a clause stating that the South Eastern Railway Co would not be responsible for any ‘package’ exceeding the value of £10. When the men returned to collect their bags, they could not be found. The company relied on the exemption clause to avoid liability. At trial both men were awarded damages for the loss of the bags and their contents, which in each case amounted to well over £10. In Parker’s case a jury found he was not aware of the special condition and was under no obligation to make himself aware of it. Judgment was entered in his favour by direction. The South Eastern Railway Co applied for a new trial on the ground of misdirection. When the motion for a new trial was refused, the South Eastern Railway Co appealed to the Court of Appeal. Issue: The issue before the Court of Appeal in deciding whether to order a new trial, was whether a person could be bound by the terms of an exemption clause if he or she had not read the clause, but had been aware of writing of which the clause formed a part. Decision: The majority of the Court of Appeal (Mellish and Baggallay LJJ) approved of the holding of a new trial by a majority decision. Bramwell LJ decided judgment should be entered for the South Eastern Railway Co. Extract: The extract from the judgment of Mellish LJ is often regarded as one of the most authoritative statements of reasonableness of notice for the incorporation of terms in a contract.

Mellish LJ The question … is whether [Parker] was bound by the conditions contained in the ticket. In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents. The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case [page 192] there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. Now if in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, I have no doubt that the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them, and does not know what they are. I hold therefore that the case of Harris v Great Western Railway Co34 was rightly decided, because in that case the plaintiff admitted, on cross-examination, that he believed there were some conditions on the ticket. On the other hand, the case of Henderson v Stevenson35 is a conclusive authority that if the person receiving the ticket does not know that there is any writing upon the back of the ticket, he is not bound by a condition printed on the back. The facts in the cases before us differ from those in both Henderson v Stevenson and Harris v Great Western Railway Co, because in both the cases which have been argued before us, though [Parker and Gabell] admitted that they knew there was writing on the back of the ticket, they swore not only that they did not read it, but that they did not know or believe that the writing contained conditions, and we are to consider whether, under those circumstances, we

can lay down as a matter of law either that [Parker] is bound or that he is not bound by the conditions contained in the ticket, or whether his being bound depends on some question of fact to be determined by the jury, and if so, whether, in the present case, the right question was left to the jury. [I] am of opinion that we cannot lay down, as a matter of law, either that [Parker] was bound or that he was not bound by the conditions printed on the ticket, from the mere fact that he knew there was writing on the ticket, but did not know that the writing contained conditions. I think there may be cases in which a paper containing writing is delivered by one party to another in the course of a business transaction, where it would be quite reasonable that the party receiving it should assume that the writing contained in it no condition, and should put it in his pocket unread. For instance, if a person driving through a turnpike-gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike-gate, and might put it in his pocket unread. On the other hand, if a person who ships goods to be carried on a voyage by sea receives a bill of lading signed by the master, he would plainly be bound by it, although afterwards in an action against the shipowner for the loss of the goods, he might swear that he had never read the bill of lading, and that he did not know that it contained the terms of the contract of carriage, and that the shipowner was protected by the exceptions contained in it. Now the reason why the person receiving the bill of lading would be bound seems to me to be that in the great majority of cases persons shipping goods do know that the bill of lading contains the terms of the contract of carriage; and the shipowner, or the master delivering the bill of lading, is entitled to assume that the person shipping goods has that knowledge. [page 193] It is, however, quite possible to suppose that a person who is neither a man of business nor a lawyer might on some particular occasion ship goods without the least knowledge of what a bill of lading was, but in my opinion such a person must bear the consequences of his own exceptional

ignorance, it being plainly impossible that business could be carried on if every person who delivers a bill of lading had to stop to explain what a bill of lading was. Now the question we have to consider is whether the railway company were entitled to assume that a person depositing lug--gage, and receiving a ticket in such a way that he could see that some writing was printed on it, would understand that the writing contained the conditions of contract, and this seems to me to depend upon whether people in general would in fact, and naturally, draw that inference. The railway company, as it seems to me, must be entitled to make some assumptions respecting the person who deposits luggage with them: I think they are entitled to assume that he can read, and that he understands the English language, and that he pays such attention to what he is about as may be reasonably expected from a person in such a transaction as that of depositing luggage in a cloak-room. The railway company must, however, take mankind as they find them, and if what they do is sufficient to inform people in general that the ticket contains conditions, I think that a particular plaintiff ought not to be in a better position than other persons on account of his exceptional ignorance or stupidity or carelessness. But if what the railway company do is not sufficient to convey to the minds of people in general that the ticket contains conditions, then they have received goods on deposit without obtaining the consent of the persons depositing them to the conditions limiting their liability. I am of opinion, therefore, that the proper direction to leave to the jury in these cases is, that if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; that if he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions; that if he knew there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing contained conditions. I have lastly to consider whether the direction of the learned judge was correct, namely, ‘Was [Parker], under the circumstances, under any obligation, in the exercise of reasonable and proper caution, to read or to make himself aware of the condition?’ I think that this direction was not

strictly accurate, and was calculated to mislead the jury. [Parker] was certainly under no obligation to read the ticket, but was entitled to leave it unread if he pleased, and the question does not appear to me to direct the attention of the jury to the real question, namely, whether the railway company did what was reasonably sufficient to give the plaintiff notice of the condition. On the whole, I am of opinion that there ought to be a new trial.

Comment 10.6.1 See Radan, Gooley, and Vickovich at 10.44–10.45.

[page 194] 10.7C

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Court: Court of Appeal in England Facts: Thornton parked his car in a multiple storey car park to which he had not been before. At the front of the car park was a large sign with certain information, including the name of the car park, prices, and the words ‘All cars parked at owner’s risk’. When Thornton approached the entrance, a red light changed to green and a ticket was dispensed from a machine. The ticket, which he did not read, contained information about the time of issue, payment details, and the following words in small print: ‘This ticket is issued subject to the conditions of issue as displayed on the premises.’ Inside the premises there was a pillar opposite the ticket machine on which certain conditions of entry were displayed. The conditions, amongst other things, purported to exempt the car park from liability for any physical injury to patrons. After Thornton returned to collect his car, he was seriously injured in the grounds of the car park. He sued to

recover damages for his injuries on the basis of the car park’s negligence. Issue: The issue before the Court of Appeal was whether the reference on the ticket given to Thornton to conditions of entry displayed inside the car park constituted sufficient notice for the exemption clause to be incorporated in the contract as one of its terms. Decision: The Court of Appeal (Lord Denning MR, Megaw LJ, and Sir Gordon Willmer) unanimously held that Thornton was entitled to damages for his injuries on the basis that the exemption clause was not incorporated into the contract. Extract: The extracts from the judgments of Lord Denning MR and Megaw LJ are directed to the necessity for reasonable notice of the inclusion of express terms, such as exemption clauses in a contract.

Lord Denning MR We have been referred to the ticket cases of former times … [which] were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat. None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long

[page 195] as they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late. The contract has already been made.36 The ticket is no more than a voucher or receipt for the money that has been paid … on terms which have been offered and accepted before the ticket is issued. In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying ‘at owner’s risk’, ie at the risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence. … It is no use telling the customer that the ticket is issued subject to some ‘conditions’ or other, without more: for he may reasonably regard ‘conditions’ in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention. … [T]he customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it. [Counsel] admitted here that [Shoe Lane] did not do what was reasonably sufficient to give Mr Thornton notice of the exempting condition. That admission was properly made. I do not pause to inquire whether the exempting condition is void for unreasonableness. All I say is that it is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way. … In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it — or something equally startling. But, although reasonable notice of it was not given, [Counsel] said that … Mr Thornton ‘knew or believed that the writing contained conditions’. There was no finding to that effect. The burden was on [Shoe Lane] to

prove it, and they did not do so. Certainly there was no evidence that Mr Thornton knew of this exempting condition. He is not, therefore, bound by it. … [Here] the whole question is whether the exempting condition formed part of the contract. I do not think it did. Mr Thornton did not know of the condition, and [Shoe Lane] did not do what was reasonably sufficient to give him notice of it. I do not think [Shoe Lane] can escape liability by reason of the exemption condition. I would, therefore, dismiss the appeal.

Megaw LJ In the present case what has to be sought … is whether [Shoe Lane] did what was reasonable fairly to bring to the notice of [Thornton], at or before the time when the contract was made, the existence of [the condition] … by which, in the midst of provisions as to [page 196] damage to property, [Shoe Lane] sought to exempt themselves from liability for any personal injury suffered by [Thornton] while he was on their premises. Be it noted that such a condition is one which involves the abrogation of the right given to a person such as [Thornton] by statute, the Occupiers Liability Act 1957. True, it is open under that statute for the occupier of property by a contractual term to exclude that liability. In my view, however, before it can be said that a condition of that sort, restrictive of statutory rights, has been fairly brought to the notice of a party to a contract there must be some clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury, was sought to be included. I certainly would not accept that the position has been reached today in which it is to be assumed as a matter of general knowledge, custom, practice, or whatever is the phrase that is chosen to describe it, that when one is invited to go upon the property of another for such purposes as garaging a car, a contractual term is normally included that if one suffers

any injury on those premises as a result of negligence on the part of the occupiers of the premises they shall not be liable. … In my view the [trial] judge was wholly right on the evidence in the conclusion which he reached that [Shoe Lane] have not taken proper or adequate steps fairly to bring to the notice of [Thornton] at or before the time when the contract was made that any special conditions were sought to be imposed. I think it is a highly relevant factor in considering whether proper steps were taken fairly to bring that matter to the notice of [Thornton] that the first attempt to bring to his notice the intended inclusion of those conditions was at a time when as a matter of hard reality it would have been practically impossible for him to withdraw from his intended entry upon the premises for the purpose of leaving his car there. It does not take much imagination to picture the indignation of [Shoe Lane] if their potential customers, having taken their tickets and observed the reference therein to contractual conditions which, they said, could be seen in notices on the premises, were one after the other to get out of their cars, leaving the cars blocking the entrances to the garage, in order to search for, find and peruse the notices! Yet unless [Shoe Lane] genuinely intended that potential customers should do just that, it would be fiction, if not farce, to treat those customers as persons who have been given a fair opportunity, before the contracts are made, of discovering the conditions by which they are to be bound. I agree that this appeal should be dismissed.

Comment 10.7.1 See Radan, Gooley, and Vickovich at 10.43 and 10.50.

[page 197]

INCORPORATION OF TERMS ON THE BASIS OF PRIOR DEALINGS

10.8C

La Rosa v Nudrill Pty Ltd [2013] WASCA 18

Court: Court of Appeal of the Supreme Court of Western Australia Facts: La Rosa was an independent transport contractor who had carried out cartage work for Nudrill Pty Ltd on a number of occasions. Nudrill Pty Ltd usually engaged him for specific jobs by way of short telephone conversations. After each job La Rosa provided an invoice showing the amount owing, details of the equipment that was transported, and the pickup and delivery locations. The invoices stated that the work was done subject to terms and conditions printed on the reverse side. One of the terms purported to exclude La Rosa’s liability ‘for any loss or damage of property and/or goods of the Client’. On one occasion La Rosa drove his semi-trailer around a roundabout too fast and a drill rig he was carrying fell off the vehicle and was damaged. When he was sued for the damage, La Rosa argued that the exclusion clause protected him from liability, as it had become part of the contract through a consistent course of prior dealings between the parties over some time. At first instance it was held that the exclusion clause was not incorporated into his contract with Nudrill Pty Ltd. La Rosa appealed to the Court of Appeal. Issue: The issue before the Court of Appeal was whether the exclusion clause on the back of La Rosa’s invoice was incorporated as an express term of the contract through prior dealings. Decision: The Court of Appeal (McLure P, Buss and Murphy JJA) unanimously dismissed La Rosa’s appeal. Extract: The extracts from the judgments of McLure P (with whom Murphy JA concurred) and Buss JA outline the relevant principles relating to the incorporation of express terms on the basis of prior dealings between the parties.

McLure P [43] A review of all the cases reveals that there is no single test for the incorporation of a term into a contract based on prior dealings. However, it

is clear that we are not here talking about implied terms in fact (which must satisfy the test in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales)37 or a term implied as a matter of trade custom or usage. The question is whether an express term is incorporated into a contract as a result of an inference arising from the prior conduct of the parties as a whole. Moreover, it is not essential in a prior dealing case that the term in issue must have been incorporated in a previous contract between the parties, whether by a contractual document or otherwise. … [page 198] [44] The test applied in the ‘ticket cases’ is frequently used in prior dealing cases. That test is whether the party seeking to rely on the term did what was reasonably sufficient to give to the other contracting party notice of the term; that is a question of fact having regard to the circumstances of each case and the situations of the contractual parties. … [45] In the ticket cases, notice of the terms is given on or around the time of entry into the relevant contract and constructive knowledge of the content of the term(s) is sufficient. … Moreover, in the ticket cases the expression ‘contractual document’ is used to refer to the sort of document in which a reasonable person would expect to find contractual terms. However, in the prior dealing cases it has a wider meaning to include documents which the parties have by their conduct accepted or treated as a contractual document. … [47] [T]he facts in this case do not support an inference that the exclusion clause was incorporated in the cartage contract as a result of the prior dealings between the parties. … The invoices were not a ‘contractual document’ within either the narrow or wider meaning of the expression. In each case the invoice was provided to [Nudrill Pty Ltd] for services already supplied pursuant to a prior contract. The purpose of the invoices was to secure payment for those services. The receipt of the invoices by [Nudrill Pty Ltd] in all the circumstances is not sufficient to justify an inference of an acceptance by [Nudrill Pty Ltd] of, and readiness to be bound by, the terms on the reverse of the invoices. Nor is it sufficient notice to [Nudrill

Pty Ltd] of the terms on which [La Rosa] would do business in the future. …

Buss JA [62] [W]here, in the case of a contract of carriage, an exemption clause is contained in a ticket or other unsigned document intended by the carrier to contain the terms of carriage, and the other party was not in fact aware, when the contract was formed, that the intended terms included an exemption clause, the carrier cannot rely on the exemption clause unless, when the contract was formed, the carrier had done everything that was reasonably necessary to notify the other party of the clause. … [63] The parties to a contract may, by their conduct, incorporate terms into the contract. For example, terms may be incorporated by a previous course of dealings between the parties. A course of dealings, for this purpose, refers in general to the existence of a prior consistent history of comparable transactions between the parties when the relevant transaction is undertaken. … [68] It will be a question of fact and degree whether, in a particular case, the parties, by their conduct, have incorporated a term into their contract by a previous course of dealings. Each case turns on its own facts and circumstances. Factors of relevance in determining whether the alleged term was incorporated include the number of prior dealings, how recent they were, and the consistency in the prior dealings and the dealing in question (for example, the similarity between the subject matter of the dealings and the manner in which the dealings were entered into or concluded). This is not, of course, an exhaustive statement of relevant factors. [69] The factors which I have identified are relevant to what each party was reasonably entitled to conclude from the actions or conduct of the other. The requisite frequency will [page 199] vary depending on the facts and circumstances of the particular case. …

Consistency is required in that … when the conduct is not consistent ‘there is no reason why it should produce an invariable contractual result’.38 [70] A term may be incorporated by a previous course of dealings without it being essential for the party seeking to rely on the term to establish that the other party had actual knowledge of it. … [71] It is not an essential pre-condition to the incorporation of a term by a previous course of dealings that: a) any document containing the relevant term have been sent or given to the party sought to be bound at or prior to the formation of each of the contracts (or one or more of them) constituting the previous course of dealings; or b) the relevant term have been incorporated in at least one of the contracts constituting the previous course of dealings. [72] However, the time when any document containing the alleged term was in fact given or sent to the party sought to be bound, and that party’s degree of knowledge (if any) of the document or the alleged term, will be relevant in determining whether it was given reasonable notice of the alleged term and, if so, what the party seeking to rely on the alleged term was reasonably entitled to conclude from the actions or conduct of the other party. … [84] [La Rosa] was not reasonably entitled to conclude from the actions or conduct of [Nudrill Pty Ltd] that it had accepted and agreed to be bound by the printed conditions on the reverse of the invoices (in particular, the exemption clause) and, as a result, those conditions were not, by a previous course of dealings, incorporated into the contract for the carriage of the drill rig. I have arrived at this opinion on the basis of the following matters, which I have evaluated and weighed in combination. [85] First, in the context of the absence of any transactions between September 1991 and July 1997, the transactions during January 1989–May 1989 and in January 1990 and September 1991 were not sufficiently proximate to the formation of the contract for the carriage of the drill rig (or the contracts entered into during the period July 1997–June 2001) to constitute a course of dealings relevant to the contract in question. [86] Secondly, the transactions during the period July 1997–June 2001 were

not sufficiently numerous or frequent to constitute a proper foundation for inferring that [Nudrill Pty Ltd], by failing to query or object to the conditions, would have led a reasonable person, in [La Rosa’s] position, to believe that [Nudrill Pty Ltd] had assented to the incorporation of the conditions into the contract for the carriage of the drill rig. [87] Thirdly, the trial judge did not find that any representative of [Nudrill Pty Ltd] had actual knowledge of the existence of the conditions or had actually read them, and [La Rosa] does not challenge the absence of such a finding. … [A]lthough it is not essential, before a term may be incorporated by a previous course of dealings, that the party sought to be bound [page 200] had actual knowledge of the term, any knowledge possessed in fact by that party is a relevant factor in determining whether the term was incorporated. [88] Fourthly, each invoice was sent to [Nudrill Pty Ltd] after the contract had been performed, and in the circumstances a reasonable person, in [Nudrill Pty Ltd’s] position, would have been entitled to regard the invoice as merely a request or demand for payment of the contract price, and would not have expected to find contractual terms in relation to the completed work in the invoice. [89] Fifthly, the relevant course of conduct between [La Rosa] and [Nudrill Pty Ltd] was to contract orally without the incorporation of written terms, and the parties never departed from this course of conduct.

Comment 10.8.1 See Radan, Gooley, and Vickovich at 10.56–10.65.

THE PAROL EVIDENCE RULE 10.9C

State Rail Authority of NSW v Heath Outdoor Ltd

(1986) 7 NSWLR 170 Court: Court of Appeal in New South Wales Facts: Heath entered into several contracts with the State Rail Authority (SRA) to construct hoardings on SRA property at Duck Creek for the display of advertising material. Two five-year contracts, signed in 1981 and 1982, contained a clause to the effect that the SRA could ‘terminate the contract at any time’ upon the giving of one month’s notice. Before one of the agreements was signed an SRA representative informed the managing director of Heath that the contract was a standard form document that the SRA never altered. When questioned about the likelihood of the SRA invoking the clause, the managing director alleged he was told that the ‘the only time … the clause is ever invoked is for non-payment of rent or if somebody wants to advertise objectionable advertising content’. A separate representation was allegedly made to the effect that the termination provision applied only to hoardings and poster panels that belonged to the SRA, and not to hoardings erected on ground space that was simply rented from the SRA. When the SRA terminated the agreement because of a ministerial policy to phase out cigarette advertising, Heath claimed the pre-contractual assurances gave rise to an estoppel or amounted to a collateral contract on the basis of which the agreements had been executed. Issues: The issues before the Court of Appeal were whether the two contracts originally gave the SRA an unconditional right of termination on written notice and, if so, whether [page 201] later conversations and correspondence varied the 1982 contract or gave rise to an estoppel so as to preclude the exercise of that right. If so, the appeal court also had to consider whether oral assurances given by the SRA before or at the time of making each contract constituted a collateral contract or gave rise to an equitable estoppel.

Decision: The Court of Appeal (Kirby P and Glass JA; McHugh JA dissenting) decided the appeal by the SRA should be allowed on the basis that the agreements gave the SRA a right of early termination and that the representations by the SRA were not sufficient to amount to either a collateral contract or a promissory estoppel in Heath’s favour. Extract: The dissenting judgment of McHugh JA extracted below contains a succinct statement of the application of the parol evidence rule.

McHugh JA It is now convenient to mention the circumstances of the signing of the 1981 contract. Discussions between [Heath] and Mr Wierzbicki and Mr Newton, two officers of [the SRA], concerning the making of that contract had taken place over a considerable time. The 1981 contract was concerned with a sign which [Heath] was to erect at Duck Creek. It was for five years. Mr Low [of Heath] said that, when Mr Giles [of the SRA] handed him a letter and a form of contract on 12 October 1981, he said to him ‘that cl 6 on the back of the agreement was not in accordance with the agreement with Mr Wierzbicki and Mr Newton in our original undertaking’. Mr Giles replied that the document was a standard authority document which could not be changed. Mr Giles said that there was no need for Mr Low to be concerned because he had ‘five years on the contract and it is very difficult for me to have that clause or any other clause altered’. Mr Giles also said that ‘the only time that that clause is ever invoked is for non-payment of rent or if somebody wants to advertise objectionable advertising content’. Mr Low said ‘as long as I have your assurance that that is the case we can proceed’. Mr Giles replied ‘you need not be concerned as the terms of that agreement apply only to hoardings and poster panels that belong to us and where you would be placing your advertising. These don’t affect you because you are building the plant and all we are doing is renting you the ground space’. In cross-examination Mr Low said that Mr Giles told him that he could not change the standard terms and conditions in [the SRA’s] printed advertising contract. Mr Low said that the reason he did not ask Mr Giles to cross out condition 6 was because ‘it became very evident to me

that he was going to have difficulty having the clauses changed if he had to take them away’. Mr Low said that immediately following the statements by Mr Giles he signed the contract. The first submission of [Heath] was that the letter dated 12 October 1981, which accompanied the advertising contract, must be regarded as part of the contract. That letter stated, inter alia: As agreed at our meeting on 25 September 1981, the contract has been drawn for a five (5) year period (1/12/81 to 30/11/86) and rental of $4,128 per annum for years one and two and $9,000 per annum for years three, four and five. … The construction of the sign must be carried out in accordance with the structural drawings submitted by you on [page 202] 17 March 1981, and to the satisfaction of [the SRA]. … The attached indemnity forms and advertising contract will need to be completed and held in this office before approval will be given for this work to commence. [Heath] says that the matters stated in the letter are part of the contractual terms and that, in the event of doubt as to the meaning of the whole contract, greater weight must be given to the specially selected terms over the printed terms. [Heath] contends that, if condition 6 is construed literally, it defeats the object and intent of the parties expressed in the special terms which are found in the letter and on the front page of the advertising contract. … The [SRA] replies that the advertising contract stated in terms that it should commence from 1 December 1981 ‘and shall, unless sooner determined as provided in the said conditions of contract, continue until 30 November 1986’. Even if one accepts [Heath’s] argument that the letter of 12 October 1981 is to be regarded as part of the contract, it does not assist [its] case. There is no inconsistency between the letter and the conditions of the contract. The letter and the advertising contract when read together indicate that the parties entered upon a contract for a period of five years ‘until sooner

determined’. However, condition 6 gave [the SRA] the right to terminate the contract at any time on one month’s notice in writing. The exercise of its right under condition 6 enabled [the SRA] to determine the contract before the five year period expired. The next submission of [Heath] was that the 1981 contract was partly oral and partly written. [It] submitted that it is always open to a party to show that a written document is not the binding record of their contract. … It is then said that the statements by Mr Giles about condition 6 were part of the contractual terms between the parties. A preliminary question which arises is whether the so called parol evidence rule prevents reliance on the oral assurances of Mr Giles. Under that rule parol evidence is not admissible to contradict or vary the terms of a written agreement. But it is a rule whose scope and rationale is often misunderstood. It has no operation until it is first determined that the terms of the agreement are wholly contained in writing. The tendering of oral evidence to prove a contractual term, therefore, cannot be excluded until it is determined that any terms in writing record the whole of the parties’ agreement. … When a person alleges that an agreement was partly oral and partly written, it is not always easy to determine whether the writing is the exclusive repository of the bargain. Williston claims that, when a document appears on its face to be a complete record of the parties’ contract, it is conclusively presumed to be the contract.39 However, Corbin takes a different view and says that the issue is whether the parties assented to a particular writing as the complete and accurate ‘integration’ of the contract.40 Support for Williston’s approach is to be found in the judgment of Street CJ in L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd.41 But in my opinion the correct rule is that the existence of writing which [page 203] appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in

writing. … In my opinion the English Law Commission correctly stated the law when it said: … the mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed. If that assertion is proved, evidence of the oral terms cannot be excluded because the court will, by definition, have found that the contractual terms are partly to be found in what was agreed orally as well as the document in question. No parol evidence rule could apply. On the other hand, if that assertion is not proved, there can be no place for a parol evidence rule because the court will have found that all the terms of the contract were set out in the document in question and, by implication, will thereby have excluded evidence of terms being found elsewhere.42 While I think that [Heath] was entitled to rely on the oral assurances of Mr Giles in support of its claim that the advertising contract and/or letter of 12 October 1981 did not contain the whole terms of the parties’ agreement, I am of opinion that on the evidence the submission that the contract was partly oral should be rejected. The proper conclusion to be drawn from the discussion between the parties is that, as a matter of contract, condition 6 was one of the contractual terms and that its literal effect was to give [the SRA] an unfettered right to terminate the contract. Mr Giles made it plain that he had no authority to change any condition of the contract. Mr Low accepted this. He said that it became apparent to him that Mr Giles was going to have difficulty getting the clauses changed if he had to take them away. Mr Giles also informed Mr Low that the document was a standard authority document which could not be changed. Whatever effect the discussion between Mr Low and Mr Giles had, it did not add to the terms of the contract. Moreover, it is not possible to conclude that the assurances amounted to a collateral contract, since the terms of the assurances contradict the terms of condition 6.43 The main contract can be the consideration for a collateral contract only when the terms of the collateral contract do not reduce or alter the rights created by the main contract.44

[page 204]

Comment 10.9.1 See Radan, Gooley, and Vickovich at 10.70–10.72.

COLLATERAL CONTRACTS 10.10C

J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435

Court: High Court of Australia Facts: During negotiations with the Savage company about the construction of a motor boat, Blakney sought advice on the type of engine that could be installed. In correspondence between them the company manager expressed his opinion about various engines and recommended one that had an ‘estimated speed’ of 15 miles per hour. When Blakney placed his order, which included the recommended engine, he signed a written agreement which did not refer to the boat’s speed. After construction and purchase, the boat reached a speed of only 12 miles per hour. Blakney sued, claiming that the reference in correspondence to the boat’s speed capacity was a condition or warranty of the contract or, alternatively, that it amounted to a collateral warranty. He argued that the statement constituted a promise, the consideration for which was his execution of the written agreement. Issue: The issue before the High Court was whether the precontractual statement in correspondence about the boat’s estimated speed could amount to a collateral contract. Decision: The High Court (Barwick CJ, Kitto, Menzies, Owen, and Walsh JJ) unanimously held that the pre-contractual statement did not give rise to a collateral contract. Extract: The extracts from the joint judgment of the High Court

outline the basis on which it ruled that a statement has to have a ‘promissory and not merely representational’ character to be judged a collateral contract.

Barwick CJ, Kitto, Menzies, Owen, and Walsh JJ The facts, as found by the learned trial judge, to which the Full Court referred were, that [Savage] had persuaded [Blakney] to abandon the idea of Twin Clae diesels for one GM diesel; that [Savage] had stated that from computations made it was assumed that the boat powered with the 4/53 GM diesel would have an estimated speed of fifteen mph; that [Blakney] was induced to order the boat with the single diesel engine on the faith of what [Savage] had informed him both orally and by letter; that the attainable speed of the boat was an important matter both in the boat building and selling industry and to [Blakney]. The Court thought that by this material [Blakney] had established a collateral warranty as to the attainable speed of the boat. [page 205] The trial judge was of opinion that the statement in [Savage’s] letter was an estimate only, expressed as an expectancy, and not an unequivocal promise of a future speed. The Full Court, after referring to a dictionary meaning of the word ‘estimate’, thought the expression ‘estimated speed 15 mph’ in [Savage’s] letter should be construed as ‘approximate speed 15 mph’. In our opinion, this was an unwarranted substitution which stripped the words of the letter of their most significant meaning. The actual words used by [Savage] in the letter should be considered. So far from being a promissory expression, ‘estimated speed 15 mph’ indicates, in our opinion, an expression of opinion as the result ‘of approximate calculation based on probability’ to use the dictionary equivalent of ‘estimate’ referred to by the Full Court. There is no need to resort to cases decided upon different facts and circumstances in order to determine the significance in this case of the actual words used by [Savage]. The words in themselves tend, in our

opinion, against the inference of a promise that the boat would in fact achieve the nominated speed. The Full Court seems to have thought it sufficient in order to establish a collateral warranty that without the statement as to the estimated speed the contract of purchase would never have been made. But that circumstance is, in our opinion, in itself insufficient to support the conclusion that a warranty was given. So much can be said of an innocent representation inducing a contract. The question is whether there was a promise by [Savage] that the boat would in fact attain the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing the consideration to make the promise effective. The expression in De Lassalle v Guildford45 that without the statement the contract in that case would not have been made does not, in our opinion, provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is but a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational. When the letter which we have quoted was written, the negotiations for the construction and delivery of the boat were incomplete. On receipt of the letter there were three courses open to [Blakney]. He could have required the attainment of the speed to be inserted in the specification as a condition of the contract; or he could have sought from [Savage] a promise — however expressed, whether as an assurance, guarantee, promise or otherwise — that the boat would attain the speed as a prerequisite to his ordering the boat; or he could be content to form his own judgment as to the suitable power unit for the boat relying upon the opinion of [Savage] of whose reputation and experience in the relevant field he had, as the trial judge found, a high regard. Only the second course would give rise to a collateral warranty. In our opinion, there is nothing in the evidence before the trial judge to support the view that [Blakney] took either the first or second of these courses: the only conclusion open upon that evidence was that [Blakney] took the third course; he accepted [Savage’s] estimate of what the boat would do under the power of the 4/53 GM diesel as sufficient to found his (Blakney’s) own judgment as to the powering of the vessel. As he said ‘I

prefer upon your advice the GM 4/53’. That the statement actually made by [Savage] was intended to have [page 206] some commercial significance upon a matter of importance to [Blakney] can be conceded; that [Blakney] was intended to act upon it, and that he did act upon it, is clearly made out. But those facts do not warrant the conclusion that the statement was itself promissory. In our opinion, so far from it being shown that the trial judge was wrong in refusing to draw the conclusion that [Savage] made a promissory statement as to the attainable speed of the cruiser (which he did by deciding that there was no condition of the contract in the stated terms) we are satisfied that he took the only course permitted by the material before him. In our opinion, the appeal should be allowed.

Comments 10.10.1 See Radan, Gooley, and Vickovich at 10.85–10.87. 10.10.2 The principle in J J Savage & Sons Pty Ltd v Blakney was affirmed by the High Court in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 333 ALR 384 at 440, where Gordon J said: A statement will be promissory if it was ‘reasonably considered’ by the person to whom it was made as ‘intended’ to be a contractual promise. It must also be shown that the person to whom the statement was made ‘intended’ to accept the statement as a contractual promise. The relevant ‘intention’ of the parties is to be judged objectively, that is, ‘deduced from the totality of the evidence’, by reference to what a reasonable person in the position of the parties would have understood. And as with any contractual promise, the statement must be sufficiently certain.

COLLATERAL CONTRACTS AND THE REQUIREMENT OF CONSISTENCY 10.11C

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133

Court: High Court of Australia Facts: Spencer sub-leased premises to Hoyt’s for a period of four years. It was a term of the sub-lease that Spencer had the right to terminate the lease at any time during its term by giving at least four weeks’ notice in writing. At the time the sub-lease was executed Spencer assured Hoyt’s that he would not terminate the sub-lease unless he was required to do so by the lessor under the head lease. However, at one point during the term Spencer did give notice in writing for Hoyt’s to vacate the premises even though no direction had been given to him by the lessor. After Hoyt’s left, they sued on the grounds that a collateral contract had been made and breached by Spencer when he promised he [page 207] would not terminate the sub-lease unless required to do so under the head lease. They argued the consideration for the collateral contract was their entry into the sub-lease. Spencer contended that any assurance given by him was unenforceable, and that no collateral agreement had arisen because it was inconsistent with the rights given to him by the sub-lease agreement that had been executed by both parties. Issue: The issue before the High Court was whether a promise could sustain a collateral contract if it contradicted an express term of the main contract. Decision: The High Court (Knox CJ, Isaacs and Rich JJ) unanimously

ruled in favour of Spencer. Extract: The extract from the judgment of Isaacs J illustrates the proposition that a collateral contract cannot be inconsistent with a right given under the main contract, entry to which purportedly serves as consideration for the collateral agreement.

Isaacs J In this case … the consideration is stated to be that [Hoyt’s] would take a lease and become lessee for the term mentioned ‘upon certain terms’. That, in view of the plea and demurrer, is the same as if those terms were set out in the declaration. The declaration avers that [Hoyt’s] took a lease ‘upon the said terms’, and says ‘yet’ [Spencer] broke his promise. In other words, it avers that [Spencer], being entitled to the consideration agreed upon, received that consideration, and yet broke his promise. There is no denial — in fact it is conceded as the very groundwork of the action, as indeed it must be — that [Spencer] is entitled to have to the full every part of the consideration mentioned, which by the admission on demurrer includes the terms of the proviso, undiminished, unaltered, and unqualified, by anything which took place up to the time of the making of the lease. Putting the argument in the best form for [Hoyt’s], it amounts to this: the respondent Spencer was to have the unqualified right as a matter of property to resume possession whenever he chose to exercise his power in terms of the proviso, but he was under a personal contractual obligation, by virtue of the collateral promise, not to exercise his property right except in accordance with the collateral promise. The answer to that, however, is that the argument rests on a fallacy. A lease is a contract. … When two parties are entering into contractual relations with respect to a given subject matter, they may (apart from special technical requirements) elect to conclude their bargain without writing, or they may elect to record it in writing, and, if in writing, they may further decide to have it under seal. But in whatever form they determine to leave their bargain, they may further agree to have one contract only, or to have separate and distinct contracts. All that is for the parties themselves to

resolve upon. If they determine to make one contract only, then the terms they decide to include are the only terms that affect them contractually. It connotes that all else is abandoned. And that is the case whatever the form of the contract. If the matter is not committed to writing, though the principle is clear, the evidence is manifestly open to great dispute. But if the parties agree to commit their agreement [page 208] to writing, then what is written is the conclusive record of the terms of their agreement, and, unless it can be shown that the document was not intended as the complete record of their bargain, no oral evidence can be admitted to alter or qualify it. … This principle applies even to the case where the agreement is partly written and partly verbal. To the extent to which the parties have deliberately agreed to record any part of their contract, that record stands unimpeachable by oral testimony. It may be that the parties have, in their discretion, chosen to record a single bargain in several documents contemporaneously, or so close in point of time that they are treated as being contemporaneously executed. In that case, as Jessel MR says in In re Wedgwood Coal and Iron Co; Anderson’s Case,46 ambiguities and even inconsistencies have to be resolved and reconciled as best the Court can. … In such case, if there be an action on the whole agreement as one entire indivisible agreement, the whole of the documents are read together, and the words of one may have to be modified by the words of another. And if in this case [Hoyt’s] were suing on one entire indivisible contract into the composition of which both the proviso in the lease and the promise alleged in the declaration entered, [Hoyt’s’] position would be that the agreement would have to be treated very much as postulated by Sir George Jessel in Anderson’s Case. But [Hoyt’s] is not suing upon such an entire indivisible contract. The contract contained in the lease … has the force of a deed. It could not be contended that the promise sued on (assuming, as perhaps by the rules of pleading we may be bound to assume, it was in writing though not under seal and not registered) was intended to be part of the one contract along with the proviso. If such were [Hoyt’s’] contention the

remedy would have been a suit for rectification or injunction at the proper time. At all events this is not the claim in the declaration. The claim is on the basis that there was no mistake in framing the main contract of lease, that that contract is complete in itself and correctly recorded, and that its only function now is as the sole consideration for the independent collateral agreement sued on. [Ferguson J, the dissenting judge in the Full Court] truly says that no question arises here as to admissibility of evidence, such as parol evidence to affect a written document, or evidence of any kind to affect a deed, or evidence proper to found a claim for rectification of the lease, or in any other way. All the observations in the authorities as to parol evidence are beside the question, because it is to be assumed that the ‘agreement’ as pleaded is established in fact. The only question on this demurrer is as to its legal effect; and up to this point I entirely agree with the view taken by Ferguson J. At one point I diverge; and that is, what is the legal force and effect to be given to the promise pleaded, having regard to the consideration on which it is alleged to be based, namely, the making of the lease with all the terms it contains? The contract contained in the lease is, as observed, complete in itself. It contains the mutual covenants and considerations of the parties, and it stands entirely on its own footing. A transferee would take it upon the very terms of the document and upon no others. And in that document the plaintiff says: ‘I Hoyt’s Proprietary Limited the within named lessee do hereby accept this lease as tenant subject to the conditions restrictions and covenants above set forth’. But, though complete in itself as a contract, it might well play another part as consideration for another promise. … [page 209] The main contract here, when utilized to form the consideration for the collateral contract, must be taken exactly as it is. Its provisions do not change according as it is considered as an independent contractor as a consideration for the collateral contract. A principle that must govern the bargain of a contractual promise made in consideration of entering into the main contract is that the parties shall have and be subject to all (not some only) of the respective benefits and burdens of the main contract. When the collateral promise is truly consistent with the main

contract, that principle has full play. The main contract is not then interfered with. The collateral contract alters, as every contract must, the contractual relations of the parties; but it does not alter, and from the simple statement of the bargain is not intended to alter, the contractual relations which are established by the main contract. When both are worked out, it may be that in the final outcome the parties are in the same position as if those contractual relations had been varied. But the practical result cannot affect the independence and legal effect of each contract; and that is what we are here concerned with. … The truth is that a collateral contract, which may be either antecedent or contemporaneous, being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made; and [Hoyt’s’] first contention is therefore unsound. If in any case the Court finds two enforceable agreements executed in such circumstances that one is intended to affect the other, no doubt such effect will be given to them as the superimposing operation of the governing contract requires; but in that case it is not collateral, but dominant. … It only remains to consider whether the alleged promise does leave the contractual rights of [Spencer] under the main contract unimpaired. Ex concessis, it does not. The very argument on which the claim is founded is that but for the additional promise [Spencer] had the power by virtue of the proviso to do what he did. And [Hoyt’s’] case is that that power was cut down by the further promise. There is at once a conflict between the two, with the result that [Hoyt’s], though in one breath conceding the full extent of the proviso as a consideration, yet, in the next, cuts it down almost to the point of rendering it nugatory. In my opinion the judgment should be affirmed and this appeal dismissed.

Comments 10.11.1 See Radan, Gooley, and Vickovich at 10.88–10.98.

10.11.2 For a critique of the rule in Hoyt’s Pty Ltd v Spencer, see N C Seddon, ‘A Plea for the Reform of the Rule in Hoyt’s Pty Ltd v Spencer’ (1978) 52 Australian Law Journal 372. 10.11.3 The rule relating to the consistency of an alleged collateral contract with the main contract can be circumvented if the principles of equitable estoppel are satisfied: see J C Phillips and J W Carter, ‘The Demise of Hoyt’s Pty Ltd v Spencer’ (1989) 2 Journal of Contract Law 181.

1.

[1913] 1 AC 30.

2. 3.

[1957] 1 WLR 370. [1965] 1 WLR 623.

4. 5.

Dick Bentley Products Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 at 627. Anson’s Law of Contract, 23rd ed (1969), at 117–18.

6. 7.

Erskine v Adeane (1873) LR 8 Ch App 756 at 766. L S Sealy, ‘Representations, Warranties and the Reasonable Man’ [1965] Cambridge Law Journal 178 at 181.

8. 9.

See Solle v Butcher [1949] 2 All ER 1107. See Leaf v International Galleries [1950] 1 All ER 693.

10. 11.

Crosse v Gardner (1688) 90 ER 656. Heilbut Symons & Co v Buckleton [1913] AC 30 at 51.

12. 13.

[1954] 1 All ER 855. Parker v South Eastern Railway Company (1877) 2 CPD 416 at 421.

14. 15.

Wilton v Farnworth (1948) 76 CLR 646 at 649. Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 228.

16. 17.

L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403. Parker v South Eastern Railway Company (1877) 2 CPD 416 at 421.

18. 19.

Foreman v Great Western Railway Company (1878) 38 LT 851 at 853. MacCormick and Birks (eds), The Legal Mind: Essays for Tony Honoré, (1986), Ch 2, 19 at 34.

20.

MacCormick and Birks (eds), The Legal Mind: Essays for Tony Honoré, (1986), Ch 2, 19 at 35. See Hart, ‘The Ascription of Responsibility and Rights’ (1949) 49 Proceedings of the Aristotelian Society 171. (1975) 132 CLR 355.

21. 22. 23.

Bullen and Leake, Precedents of Pleadings in Personal Actions in the Superior Courts of Common Law, 3rd ed (1868) at 467–8. Petelin v Cullen (1975) 132 CLR 355 at 359.

24.

See Whelpdale’s Case (1604) 77 ER 239; Holdsworth, A History of English Law, 2nd ed (1937), vol 8 at

25. 26.

50–1. Wilton v Farnworth (1948) 76 CLR 646 at 649. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 843 (Lord Wilberforce) and 851 (Lord Diplock); Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 507–8; Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 at 62.

27. 28.

[1894] AC 217. L’Estrange v Graucob [1934] 2 KB 394 at 402–3.

29. 30.

L’Estrange v Graucob [1934] 2 KB 394 at 406–7. Olley v Marlborough Court [1949] 1 KB 532.

31. 32.

L’Estrange v Graucob [1934] 2 KB 394. Low v Bouverie [1891] 3 Ch 82.

33. 34.

See Chapelton v Barry Urban District Council [1949] 1 KB 532. (1976) 1 QBD 515.

35. 36.

(1875) LR 2 Sc & Div 470. See Olley v Marlborough Court Ltd [1949] 1 KB 532.

37. 38.

(1982) 149 CLR 337 at 347. McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 138.

39. 40.

Williston on Contracts, 3rd ed (1961), s 633. Corbin on Contracts (1960) vol 3 at 358–9.

41. 42.

(1956) 56 SR (NSW) 81 at 88; 73 WN (NSW) 9 at 14. The Law Commission, Law of Contract, The Parol Evidence Rule (January 1986) Cmnd 9700, par 2.12 at 11.

43. 44.

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133. Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 139.

45. 46.

[1901] 2 KB 215 at 222. (1877) 7 Ch D 75 at 99.

[page 210]

11 IMPLIED TERMS

INTRODUCTION 11.1 This chapter deals with the circumstances in which terms may be implied into contracts. Although most contractual terms are express, it may be necessary to incorporate terms by implication where the contract does not expressly provide for what happens when some extraneous event occurs. Some terms are implied into a contract to give effect to the presumed intentions of the parties. These are terms that are implied on the facts of the case and those that are implied by custom and usage. In such cases the onus of proof rests on the party alleging the term should be implied. In other cases terms are implied simply because they are presumed to be part of the contract. These terms are usually implied by operation of law. In cases where the presumed intentions of the parties are sought to be implied, courts are generally reluctant to imply terms if the contract is in writing and has been the subject of negotiation. Where it is argued that a term should be implied because of the specific facts and circumstances of the case, courts have tended to distinguish between contracts that are entered into informally or orally, and contracts that are entered into by formal written means. In the latter category the aim is to discover what the contract objectively means to the reasonable person, rather than to somehow make it fairer or more reasonable. According to the key Privy Council decision in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, which was confirmed by the High Court in many cases, a term may be implied on the facts of the case only where the term is

‘reasonable and equitable’, necessary to give ‘business efficacy’ to the contract, so obvious that ‘it goes without saying’, capable of clear expression, and not inconsistent with any express term. In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 (see 11.2C) the High Court considered and applied the BP Refinery approach to the implication of terms on the facts of the case. In Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (see 11.3C), involving a contract that was less formal and partly oral, the High Court cautioned against an ‘automatic or rigid application of the cumulative criteria’ identified in the BP Refinery case. Terms may also be implied into contracts by statute or common law. Here, policy considerations take precedence over any presumed intentions of the parties. First, there are often statutory provisions that mandate the implication of terms in some contracts, such as consumer contracts and contracts for sale of goods. Typical examples are terms that guarantee merchantable or acceptable quality of goods, or the rendering of services with due care and skill. Second, the common law has over time sanctioned the implication, where necessary, of terms that are considered inherent to certain types or classes of contract. Typical examples [page 211] are terms in employment contracts to the effect that employees are to take reasonable care in carrying out their work, and employers are to provide employees with a safe workplace. In these cases courts will need to be satisfied that implication of the term is necessary in order to avoid the rights conferred by the contract to be rendered nugatory or worthless. This is illustrated in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 (see 11.4C). It is also clear that some terms have been implied by common law courts to all contracts, regardless of the class to which they belong. An important example here is the implied term of cooperation, which binds each party to do what is necessary to enable the other party to have the benefit of the contract. A term may also be implied into a contract to incorporate a relevant custom in a particular market, trade, or locality. The party alleging the custom, usage, or way things are done in a particular context or situation bears the onus of

proving the existence of the custom as a clear matter of fact that is ‘well known and acquiesced in’, so long as it does not contradict an express term of the contract. The requirements for establishing custom and usage as a matter of fact that would justify the implication of a contractual term may be seen in the important High Court decision of Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Pty Ltd (1986) 160 CLR 226 (see 11.5C). A controversial area in relation to the implication of contractual terms is the issue of the extent to which there exist implied terms of good faith in commercial contracts. Although the precise nature of good faith terms in contract law is not clear, they have been described as precluding the exercise of a contractual power ‘capriciously for an extraneous purpose’. There have been widely varying and opposing views expressed from judicial and academic sources about a range of matters in this respect — the recognition of terms of good faith, their essential nature, and the contracts to which they could apply; the circumstances of their implication; and the possibility of their express exclusion. The law in Australia on this topic has not been definitively stated by the High Court. However, there seems to be agreement that a duty of good faith will not routinely be implied into commercial contracts. On the other hand, it also seems clear that good faith terms may be implied into standard form contracts, especially where they contain a general power of termination, and relational contracts that involve an ongoing relationship between business parties based on expectations of loyalty and interdependence. An important example of a case in which a term of good faith was implied in a commercial contract is Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 (see 11.6C).

TERMS IMPLIED ON THE FACTS OF THE CASE 11.2C

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Court: High Court of Australia Facts: The State Rail Authority (SRA) accepted Codelfa’s tender in relation to excavation work required for the construction of the

Eastern Suburbs Railway. Construction of the railway was authorised by statute, which included a provision granting the SRA immunity from prosecution for nuisance. The parties agreed that Codelfa was to complete its work within 130 weeks from commencement. It was expressly agreed that Codelfa would [page 212] bear all necessary costs for the work at an agreed price regardless of the difficulties it might encounter. In order to complete on time, Codelfa calculated it would need to work three eight-hour shifts per day for six days per week, with certain work on Sundays as well. However, local residents obtained an injunction against Codelfa, which mistakenly assumed it was protected by the SRA’s statutory immunity. This meant that work could not proceed between 10 pm and 6 am on the six days or at all on Sundays. The SRA refused Codelfa’s claim for additional costs. Issue: One of the issues before the High Court was whether there were grounds upon which to imply a term into the contract granting Codelfa further time to complete and requiring the SRA to indemnify Codelfa against additional costs incurred. Decision: On the issue of implied terms, the High Court (Stephen, Mason, Aickin, Wilson, and Brennan JJ) held unanimously that there was no basis upon which to imply any terms arising from the grant of the injunction. Extract: The extracts from the judgment of Mason J are indicative of the High Court’s reasoning on the issue of implied terms.

Mason J In this ocean of litigious controversy there is one large island of agreement between the parties. It is common ground that their contract consists of the agreement dated 21 March 1972 and the various documents which it incorporates. [Codelfa] does not suggest that dehors the agreement

and the incorporated documents there is to be found a term actually agreed upon by the parties which together with the contract documents stands as the true contract or which stands in its own right as a collateral contract. Nor does [Codelfa] suggest that there is a case for rectification arising from the existence of such a term on the footing that it was inadvertently omitted from the contract documents. [Codelfa’s] case is that a term has to be implied in the contract to give it business efficacy, to make it workable. Consequently, there is no contest as to what constitutes the contract; rather the contest is as to its meaning and effect. When we say that the implication of a term raises an issue as to the meaning and effect of the contract we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision. Nonetheless, the implication of a term is an exercise in interpretation, though not an orthodox instance. … The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it — it is not a term that they have actually agreed upon. Thus, in the case of the implied term [page 213] the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties’ actual intention; the implication of a term is designed to give effect to the parties’ presumed intention. For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their

willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question. Accordingly, the courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. … The basis on which the courts act in implying a term was expressed by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd in terms that have been universally accepted: Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying. …1 The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council: ‘(1) it must be reasonable and equitable; (2) 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; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’2 … The importance of [the] evolution of the law as it affects the construction of contracts is that it centres upon the presumed, rather than the actual, intention of the parties. Once it is accepted that in the construction of the contract account is taken of the presumed intention of the parties it naturally follows that account should also be taken of their presumed intention when the court is called upon to decide whether a term is to be implied. The existence of the remedy of rectification and the purpose which it serves make it obvious that the actual intention of the parties cannot constitute the basis of an implied term. … The implication of the term found by the Court of Appeal rests on findings made by the arbitrator based on circumstances surrounding the making of

the contract, including evidence of the discussions between the parties which preceded entry into the contract. Thus the arbitrator found that there was a common understanding (described as a ‘belief’ by the Court of Appeal) that the works would be carried out on a three shift continuous basis six days per week and without restriction as to Sundays. He also found that the Authority [page 214] had represented to Codelfa, and that it had accepted, that no injunction would be granted in relation to noise or other nuisance. He further found that the works could not be carried out in accordance with methods and programmes agreed between the parties unless Codelfa worked three shifts a day for six days a week. The first question is whether, in the light of the principles as I have explained them, it was legitimate to look to this material on the issue of implication of a term. I think it was. The discussions which generated these findings were not negotiations about the terms of the contract. The terms of the contract documents had been determined in advance by the Authority. By lodging its tender Codelfa accepted the Authority’s contract documents. The relevant discussions were therefore directed to the question of price. Their object was to enable Codelfa to inform itself of what was involved in the work and to cost it so as to arrive at a price for inclusion in its tender. The consequence is that the discussions did not have the character of negotiations in the course of which the parties gradually evolved the terms of a bargain ultimately embodied in written form. Had the discussions been of that kind then, as we have seen, recourse to them would have been prohibited for the purpose of interpreting the contract by reference to the parties’ actual intentions as expressed before entry into the contract. As it was, the relevant discussions reflect neither the preliminary consensus that merged into the written contract, nor statements made during the course of negotiations indicative of the unilateral intentions of each party. Instead the evidence revealed a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon for the simple reason that it was a matter of common assumption.

To say that the maintenance of three eight hour shifts a day for six days a week was a matter of common contemplation between the parties is not enough in itself to justify the implication of a term. … It must appear that the matter of common contemplation was necessary to give the contract business efficacy and that the term sought to be implied is so obvious that it goes without saying. In this case the problem, as I see it, lies not so much in saying that the implication of a term is necessary to give business efficacy to the contract, as in concluding that the particular term to be implied is so obvious that ‘it goes without saying’. … [T]here remains an insurmountable problem in saying that ‘it goes without saying’ that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal or that implied by the arbitrator and by [the Supreme Court]. I doubt whether the fiction of treating the parties as reasonable and fair makes the problem any the less difficult. This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution. [page 215] My reluctance to imply a term is the stronger because the contract in this case was not a negotiated contract. The terms were determined by the Authority in advance and there is some force in the argument that the Authority looked to Codelfa to shoulder the responsibility for all risks not expressly provided for in the contract. It is a factor which in my view makes it very difficult to conclude that either of the terms sought to be implied is so obvious that it goes without saying.

Comments 11.2.1 See Radan, Gooley, and Vickovich at 11.8–11.9 and 11.19–11.21. 11.2.2 This case is also relevant to the topic of frustration, as extracted at 25.2C. 11.3C

Byrne v Australian Airlines Ltd (1995) 185 CLR 410

Court: High Court of Australia Facts: Byrne and Frew, baggage handlers employed by Australian Airlines, were dismissed from their positions for aiding a work colleague to search through customers’ luggage for the purpose of stealing goods. They brought actions in the Federal Court, claiming that the terminations were ‘harsh, unjust or unreasonable’ and therefore in breach of cl 11(a) of the Transport Workers (Airlines) Award 1988, which governed the terms of their employment. Byrne and Frew argued that cl 11(a) of the award was an implied term of their employment contract in order to attract the remedy of damages. If they had limited their case to the legislation dealing with awards, the courts would only have been able to impose a monetary penalty against Australian Airlines. Alternatively, they claimed the terminations were illegal and void because they breached cl 11(a) of the award, meaning that Australian Airlines had in effect repudiated their employment contracts, giving rise to the remedy of damages. Issue: The issue before the Court was whether the award provision had become a term of the contract. In that process, the judgments addressed the distinction between terms implied by law and terms implied by fact, as well as the application of the principles for the implication of contractual terms. Decision: The High Court (Brennan CJ, Dawson, Toohey, McHugh, and Gummow JJ) unanimously rejected the arguments of the baggage handlers on the issue of the implied term. Brennan CJ, Dawson and Toohey JJ held that there was no need to imply the award provision in the employment contract because it dealt

specifically with harsh dismissal, which was not necessary to give the contract efficacy. McHugh and Gummow JJ agreed that implication of the award provision was not necessary to give business efficacy to the actual agreement between the parties to the dispute (on the basis of their presumed intention) or to all employment contracts as a class of contract (on the basis of factors [page 216] independent of intention). Importantly, the High Court took the view that the principles for implying terms could be applied less rigorously with agreements that were oral or not fully expressed, such as many employment contracts. Extract: Extracts below from the separate joint judgments of Brennan CJ, Dawson and Toohey JJ, and McHugh and Gummow JJ incorporate the main reasons for the High Court’s decision.

Brennan CJ, Dawson and Toohey JJ The implication which [Byrne and Frew] seek to make is based upon the presumed or imputed intention of the parties. In that context, the remarks of the majority in the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council are frequently called in aid: … (1) [the implication] must be reasonable and equitable; (2) 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; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.3 In laying down those criteria, it was recognised that there was a degree of overlap. Further … the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council have been applied in this court are cases in which there was a formal contract, complete on its face.

… [A] rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was … formulated by Deane J in these terms: The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.4 That is, we think, the appropriate test to apply in this case and the answer must be that it is not necessary to imply a term in the form of cl 11(a) for the reasonable or effective operation of the contract of employment in all the circumstances. In the absence of any provision in the award and of any express provision in the contract of employment the law would regard it as a legal incident of the contract that it should be terminable upon reasonable notice or summarily [page 217] for serious breach. Clause 11(a) may alter that position, but there is no reason to presume that any alteration was intended by the parties to form a term of their contract, nor any reason to impute such an intention to them. Plainly, the fact that the inclusion of such a term would, if it were breached, support an action for damages by the employee is no ground for saying that the term is necessary for the reasonable or effective operation of the contract. The contract is capable of operating reasonably and effectively in

the absence of such a term and in the presence of an award provision offering limited remedies in the event of breach. The argument that cl 11(a) constituted an implied term of the contract of employment should be rejected.

McHugh and Gummow JJ Business efficacy We turn … to consider the submission that cl 11(a) was implied as a term from the particular circumstances of the case and to give effect to some apparent underlying intention of the parties about providing business efficacy. Reliance here was placed upon the well-known statement of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council.5 This has been approved and applied in numerous decisions in this court.6 … The Privy Council specified five conditions which, whilst they might overlap, must be satisfied before a court may imply a term in a contract which the parties had not thought fit to express. First, the term must be ‘reasonable and equitable’; secondly, 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; thirdly, the term must be so obvious that ‘it goes without saying’; fourthly, it must be ‘capable of clear expression’; and, finally, it must not contradict any express term. In [the BP Refinery case] itself and in other cases … the question was whether a term should be implied in a formal written contract which was complete upon its face. That is not the present case. We have referred to the exiguous nature of the evidence as to the form taken by, and the express terms of, the contract of employment between [Australian Airlines] and [Byrne and Frew]. There are two consequences. First, this species of implication is concerned with the circumstances of the particular case. The primary judge and Black CJ and Gray J in the Full Court referred to the need to prove facts leading to the implication of a term of this nature. Gray J said: [T]his Full Court does not know what all of the express terms of the

contracts were. It does not know whether they were adequate to make the contracts of employment efficacious or whether any of them would contradict the proposed implied term. An examination of the [page 218] facts surrounding the creation of each contract of employment might lead to a different result for one appellant from the other.7 Secondly, where the contract is not in writing and is oral or partly oral or it appears that the parties themselves did not reduce their agreement to a complete written form, caution is required against an automatic or rigid application of the cumulative criteria identified in [the BP Refinery case]. We should proceed on the footing that the present case is to be approached in this way. In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied ‘of course’.8 If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied.9 The contractual term propounded by [Byrne and Frew] would operate in a partisan fashion. It would favour the interests of the employee at the expense of those of the employer. Further, in the operation sought to be given the term by [Byrne and Frew], so as to require procedural regularity or fairness, the term also would qualify what otherwise has been understood to be the general law of the employment contract. …

It is true that, in this country, what one might call the overall relationship between employer and employee includes the effect which by statute must be given to a relevant award made under the federal or a State system. … There is no reason why an employee might not be engaged upon terms and conditions including some or all of the terms of an award under the legislation. … But these considerations do not, as a matter of imputed intention of the parties to a particular employment contract, render it any more likely that the importation into the contract of a provision such as cl 11(a) of the award was so obvious that it went without saying, or that it was necessary for the reasonable or effective operation of the contract. … In contracts of this nature, apparently lacking written formality and detailed specificity, it still is necessary to show that the term in question would have been accepted by the contracting parties as a matter so obvious that it would go without saying. That cannot be postulated here. [page 219] Nor could it be said that the implication into the contract of employment of a term to the effect of cl 11(a) of the award would be necessary for their reasonable or effective operation. In the absence of such a contractual provision, there would remain unaffected the entitlement of the employer at general law to terminate at will on giving reasonable notice and to dismiss summarily for misconduct. … Accordingly, we accept the submissions for [Australian Airlines] that the term for which [Byrne and Frew] contend, is not to be implied as a matter of business efficacy in its [contracts of employment with Byrne and Frew].

Implications independent of intention What, then, is involved in the proposition that a contractual term is implied as a matter of law rather than as the assumed intention of the parties? There is at least one basic distinction. It is that, as indicated above, terms

implied by the application of what one might call the business efficacy test are terms unique to the particular contract in question, depending upon the form of the contract, the express terms and the surrounding circumstances. By contrast, terms implied by law are, in general, implied in all contracts of a particular class or which answer a given description.10 … There is force in the suggestion that what now would be classified as terms implied by law in particular classes of case had their origin as implications based on the intention of the parties, but thereafter became so much a part of the common understanding as to be imported into all transactions of the particular description. … Many of the terms now said to be implied by law in various categories of case reflect the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined.11 Hence, the reference in the decisions to ‘necessity’. For example, it is established that the mere relationship of landlord and tenant implies a covenant for quiet enjoyment. The reason for this appears to be that, originally, the common law courts would not recognise the tenant as having any estate in the demised land and would not reinstate the tenant if ejected by the landlord. … In the present appeal, [Byrne and Frew] relied upon this concept of necessity. Their submission was that employment contracts were a wellrecognised ‘class’ of contract. That was conceded by [Australian Airlines]. So also was the proposition that the law imported various incidents into the relationship of employment, one of them being the entitlement of the employer to terminate the employment at will on giving reasonable notice and to dismiss summarily for misconduct. It was then submitted that the existence of the award, and in particular cl 11(a), ‘required’ reformulation of that incident of the relationship by importing, in terms, the provisions of cl 11(a). [page 220] However, there is no ‘necessity’ for such a step. … The contract of

employment is not, from the viewpoint of the employee, rendered nugatory if the existing provisions thereof remain, as a matter of contract, to operate concurrently with the regime established by the award and deriving its authority from statute. There is nothing to suggest that the contracts of employment were not workable and effective before the introduction into awards of provisions such as cl 11(a). This is not a case where a provision such as cl 11(a) is necessary lest the contract be deprived of its substance, seriously undermined or drastically devalued in an important respect.

Comment 11.3.1 See Radan, Gooley, and Vickovich at 11.13, 11.28–11.29, and 11.33.

TERMS IMPLIED BY LAW 11.4C

Commonwealth Bank of Australia v Barker (2014) 253 CLR 169

Court: High Court of Australia Facts: Barker was a long-term employee of the Commonwealth Bank and held an executive director position in Adelaide. On 2 March 2009 he was advised that his position would be made redundant after four weeks unless he was redeployed within the Bank before then. He lost access to his Bank email and voicemail almost immediately and was not able to access Bank information about deployment and other opportunities. He was therefore not informed about an alternative position within the Bank until 26 March 2009, and the recruitment consultant responsible for that position did not inform him of its existence. Barker was also not advised by anyone in the Bank about the possibility of retraining him for that role. He commenced proceedings against the Bank, alleging that it had breached a term of

mutual trust and confidence, which was implied by operation of law, by effectively denying him redeployment within the Bank. Barker succeeded at first instance and again on appeal. A majority in the Full Court of the Federal Court held that a term of mutual trust and confidence was implied in his contract of employment, and that the Bank had breached it by failing to provide him with the opportunity of redeployment. The Bank appealed to the High Court. Issue: The issue before the court was whether employment contracts contain by law a term that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them. Decision: The High Court (French CJ, Kiefel, Bell, Gageler, and Keane JJ) unanimously overturned the Full Court decision and held that a term of mutual trust and confidence should not be implied by law in employment contracts. [page 221] Extracts: The extracts from the joint judgment of French CJ, Bell and Keane JJ highlight the High Court’s reasoning in rejecting the implication of an implied term of mutual trust and confidence by operation of law in employment contracts.

French CJ, Bell and Keane JJ The employment relationship, in Australia, operates within a legal framework defined by statute and by common law principles, informing the construction and content of the contract of employment. This appeal raises the question whether, under the common law of Australia, there is a term of mutual trust and confidence to be implied by law in all employment contracts. For the reasons that follow, that implication is a step beyond the legitimate law-making function of the courts. It should not be taken. This appeal, against a decision of the Full Court of the Federal Court of Australia, which made the implication, should be allowed. …

The implication of terms The common law in Australia must evolve within the limits of judicial power and not trespass into the province of legislative action. This Court and, to a lesser extent, intermediate appeal courts have a law-making function. That function can only be exercised as an incident of the adjudication of particular disputes. The first point of reference in its exercise is ‘the web of established legal principle’.12 As Brennan J said in Dietrich v The Queen:13 There must be constraints on the exercise of the power, else the courts would cross ‘the Rubicon that divides the judicial and the legislative powers. A judicial announcement of an obligation of mutual trust and confidence, to be applied as an incident of employment contracts and applicable to employers and employees alike, involves the assumption by courts of a regulatory function defined by reference to a broadly framed normative standard. Broadly framed normative standards are familiar to courts required to apply, in common law or statutory settings, criteria such as ‘reasonableness’, ‘good faith’ and ‘unconscionability’. However, the creation of a new standard of that kind is not a step to be taken lightly. Where the standard is embodied in a new contractual term implied in law, the bases for the implication in law of contractual terms must be considered as the first point of reference. Courts have implied terms in contracts in a number of ways: in fact or ad hoc to give business efficacy to a contract;14 by custom in particular classes of contract;15 [page 222] in law in particular classes of contract; or in law in all classes of contract. Contractual terms implied in law may be effected by the common law or by statute. If effected by the common law they may be displaced by the express terms of the contract or by statute.

Implication of a term in fact in a contract, by reference to what is necessary to give it business efficacy, was described in Codelfa Construction Pty Ltd v State Rail Authority of NSW as raising issues ‘as to the meaning and effect of the contract’. Implication is not ‘an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision’.16 It is nevertheless an ‘exercise in interpretation, though not an orthodox instance’. The implication of terms in fact was also characterised in Attorney General of Belize v Belize Telecom Ltd17 as an exercise in construction. Lord Hoffmann, delivering the judgment of the Privy Council, said: [I]t is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.18 The distinction thus drawn is appropriate even though the scope of the constructional approach adopted by Lord Hoffmann has been debated. In Codelfa, the implication of a term in law was said to be based upon ‘more general considerations’ than those covered by the concept of business efficacy. That distinction attracted authoritative support in ConStan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd.19 … It has been accepted in this Court that some rules treated as implications of terms in law in particular classes of contract, or contracts generally, can also be characterised as rules of construction. Mason J, in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,20 so characterised the principle enunciated by Lord Blackburn in Mackay v Dick: [W]here in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.21 The language of Lord Blackburn was indicative of a rule of construction

rather than of implication. Nevertheless, Mason J also referred to the rule as defining an implied ‘duty to co-operate’.22 [page 223] The majority in the Full Court of the Federal Court referred to the implied duty of cooperation as providing an ‘alternative approach’ to the application of the implied duty of mutual trust and confidence. Their Honours relied upon its formulation in Secured Income as one which ‘requires a party to a contract to do all things necessary to enable the other party to have the benefit of the contract.’ That obligation of cooperation required the Bank to take the positive steps necessary to enable Mr Barker to have the benefit of cl 8, which contemplated the possibility of redeployment within the Bank as an alternative to termination. In opening that alternative approach, their Honours adverted to the suggestion by Lord Steyn in Malik23 that the implied duty of mutual trust and confidence propounded in that case ‘probably has its origin in the duty of co-operation between contracting parties.’ As appears below, whatever the historical basis in the United Kingdom for the implied duty of mutual trust and confidence, it cannot be supported in this country as an expression or development of the implied duty of cooperation. As to the direct application of the implied duty of cooperation, the Bank submitted in this Court, as Jessup J had reasoned in his dissent, that there was no relevant contractual benefit with which the implied term could engage. Clause 8 [of Barker’s contract] conferred a benefit by way of a termination payment but did not confer a contractual entitlement to the benefit of the Redeployment Policy. The submission made on behalf of Mr Barker that ‘the prospect of … redeployment was a benefit in the relevant sense’ should not be accepted. An implication in law may have evolved from repeated implications in fact. As Gaudron and McHugh JJ observed in Breen v Williams,24 some implications in law derive from the implication of terms in specific contracts of particular descriptions, which become ‘so much a part of the common understanding as to be imported into all transactions of the particular description.’ The two kinds of implied terms tend in practice to

‘merge imperceptibly into each other’. That connection suggests, as is the case, that the ‘more general considerations’ informing implications in law are not so remote from those considerations which support implications in fact as to be at large. They fall within the limiting criterion of ‘necessity’, which was acknowledged by both parties to this appeal. The requirement that a term implied in fact be necessary ‘to give business efficacy’ to the contract in which it is implied can be regarded as a specific application of the criterion of necessity. The present case concerns an implied term in law where broad considerations are in play, which are not at large but are not constrained by a search for what ‘the contract actually means.’ In Byrne v Australian Airlines Ltd, McHugh and Gummow JJ emphasised that the ‘necessity’ which will support an implied term in law is demonstrated where, absent the implication, ‘the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined’ or the contract would be ‘deprived of its substance, seriously undermined or drastically devalued’. The criterion of ‘necessity’ in this context has been described as ‘elusive’ and the suggestion made that ‘there is much to be [page 224] said for abandoning’ the concept. Necessity does, however, remind courts that implications in law must be kept within the limits of the judicial function. They are a species of judicial law-making and are not to be made lightly. It is a necessary condition that they are justified functionally by reference to the effective performance of the class of contract to which they apply, or of contracts generally in cases of universal implications, such as the duty to cooperate. Implications which might be thought reasonable are not, on that account only, necessary. The same constraints apply whether or not such implications are characterised as rules of construction. …

The implication in Australia The conclusion reached by the House of Lords in Malik [in which the House of Lords held the implied term was established as a standard term implied by law as an incident of all contracts of employment] must be

understood in the context of the existing body of decisions made by the courts and tribunals of the United Kingdom, reflecting a consensus as to the implication which predated Malik.25 The history of the development of the term in the United Kingdom is not applicable to Australia. There is a background of approving references to the implied term in decisions of Australian State and federal courts.26 The strength of those approving references, however, depends upon the analysis underpinning them. In South Australia v McDonald, decided in 2009, the Full Court of the Supreme Court of South Australia observed that, with the exception of two first instance decisions, none of the Australian authorities to that date had ‘addressed in any detail the basis for the implication of the implied term.’27 In that case, the Full Court concluded that the extensive statutory and regulatory context in which the contract in question operated rendered the implied term unnecessary. In an obiter statement, their Honours acknowledged that it had long been recognised in Australia that contracts of employment involve ‘elements of mutual confidence.’ They related the development of the implied term to a contemporary view of the employment relationship as one of common interests and partnership. There have been passing references to the duty in two decisions of this Court, neither of which constituted a determination that the duty should be implied.28 In the end, while taking appropriate note of the decisions of State and federal courts, this Court must determine the existence of the implied duty by reference to the principles governing implications of terms in law in a class of contract. That requires this Court to determine whether the proposed implication is ‘necessary’ in the sense that would justify the exercise of the judicial [page 225] power in a way that may have a significant impact upon employment relationships and the law of the contract of employment in this country. The broad concept of ‘necessity’ discussed earlier in these reasons may be defined by reference to what ‘the nature of the contract itself implicitly requires’. It may be demonstrated by the futility of the transaction absent

the implication. It is not satisfied by demonstrating the reasonableness of the implied term. The duty to cooperate satisfies the criterion of necessity explained in Byrne. The implied term of mutual trust and confidence, however, imposes mutual obligations wider than those which are ‘necessary’, even allowing for the broad considerations which may inform implications in law. It goes to the maintenance of a relationship. It appears, at least in part, to be informed by a view of the employment contract as ‘relational’, a characteristic of uncertain application in this context and not one which was advanced on behalf of Mr Barker. The implied term cannot be treated as a particular application to employment contracts of the duty to cooperate, which applies to contracts generally. That duty is directly related to contractual performance, which explains to some degree why it can arguably be characterised as a rule of construction. The duty of mutual trust and confidence is proposed in this appeal as an implication apposite to the disposition of a particular dispute in which an employee complains of an employer’s conduct. Yet it is an implication which would impose obligations not only on employers but also on employees, whose voices about that consequence of the implication are not heard in this appeal. Neither party had a direct interest in putting submissions to the Court about the burden the implication might place on employees. While the mutuality of an obligation and its effect upon a range of interests is not a bar to its implication, it locates the propounded implication close to the boundary between judicial law-making and that which is within the province of the legislature. … The complex policy considerations encompassed by those views of the implication mark it, in the Australian context, as a matter more appropriate for the legislature than for the courts to determine. It may, of course, be open to legislatures to enshrine the implied term in statutory form and leave it to the courts, according to the processes of the common law, to construe and apply it. It is a different thing for the courts to assume that responsibility for themselves. The mutual aspect of the obligation cannot be put to one side by characterising its operation with respect to employees as merely a restatement of the existing duty of fidelity. It is more broadly worded than that obligation. As Jessup J observed in his dissenting judgment in the Full Court, the proposed implied duty of mutual trust and

confidence might apply to conduct by employees which was neither intentional nor negligent and did not breach their implied duty of fidelity, but objectively caused serious disruption to the conduct of their employer’s business. Importantly, the implied duty of trust and confidence as propounded in Malik is directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract. It depends upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law. It should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia. [page 226] The above conclusion should not be taken as reflecting upon the question whether there is a general obligation to act in good faith in the performance of contracts. Nor does it reflect upon the related question whether contractual powers and discretions may be limited by good faith and rationality requirements analogous to those applicable in the sphere of public law. Those questions were not before the Court in this appeal. Mr Barker also sought to support the decision of the Full Court by way of a notice of contention and the submission that the term of mutual trust and confidence should be implied as a matter of fact in the Agreement. For the reasons already given, the term did not answer the criterion of necessity required to support its implication in law in employment contracts generally. Mr Barker’s counsel was unable to point to any particular feature of the Agreement that would support its implication in fact, albeit he referred to Mr Barker’s seniority, his long and distinguished career with the Bank, and the silence of the contract on matters of trust and confidence. The submission in support of an implication in fact must be rejected.

Comment 11.4.1 See Radan, Gooley, and Vickovich at 11.34–11.40.

TERMS IMPLIED BY CUSTOM 11.5C Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur

Insurance (Australia) Pty Ltd (1986) 160 CLR 226 Court: High Court of Australia Facts: Con-Stan engaged an insurance broker to arrange for certain business insurances, which were effected through the services of Norwich. Premium payments for three policies were made by ConStan directly to the broker, but these were never remitted to the insurance company. Subsequently the broker was wound up and Norwich, being one of its creditors, sued Con-Stan directly to recover the premiums. Norwich failed because the Supreme Court accepted in the circumstances of the case that a term could be implied in the contracts of insurance. This was on the ground of custom and usage, with the court accepting that payment by an insured to the broker constitutes a discharge of the obligation to pay the insurer. However, the Court of Appeal reversed the decision. Con-Stan appealed to the High Court. Issue: The issue before the High Court was whether the criteria for implying terms into a contract on the grounds of custom and usage had been satisfied. Con-Stan’s position was that it was customary in the insurance industry for insurers to look to the broker for payment or, alternatively, that its payment to the broker of the premiums discharged any obligations it may have had to Norwich. [page 227] Decision: In a joint judgment the High Court (Gibbs CJ, Mason, Wilson, Brennan, and Dawson JJ) unanimously rejected Con-Stan’s reliance on terms implied by custom to avoid liability to Norwich. It decided Con-Stan had failed to establish that the custom relied on

was so well known that such a term could reasonably be implied into every insurance contract. Extract: The extracts from the High Court’s joint judgment explain its reasoning and outline the common law criteria for implication of terms through trade, custom, and usage.

Gibbs CJ, Mason, Wilson, Brennan, and Dawson JJ In the present case, if [the broker] had been an agent of Norwich with authority to receive money on the latter’s behalf, the payment by ConStan of its premiums to [the broker] would have constituted payment to the principal [Norwich]. Norwich’s sole recourse would then have been against [the broker] for failure to account for moneys received in its capacity as agent. However, under the general principles of the law of agency, a broker is the agent of the assured, not the insurer. … This avenue foreclosed, Con-Stan nevertheless seeks to avoid having to pay the premiums a second time on a number of distinct grounds. It was submitted that: (1) there is an implied term in the contract of insurance, arising by virtue of custom or usage in the industry, that a broker alone is liable to an insurer for payment of the premium, or alternatively there is an implied term that payment of the premium to a broker discharges the assured’s obligation to the insurer; (2) alternatively, similar terms should be implied to give business efficacy to the contract. …

Custom The principal submission advanced on behalf of [Con-Stan], and the one which assumed the greatest importance both in argument before this court and at the trial, is that there is an implied term in the contract of insurance between Con-Stan and Norwich, arising by virtue of custom in the industry, that an insurer is entitled to look only to the broker for payment of the premium. An alternative submission, which was the one accepted by [the trial judge], is that the implied term arising by custom is that payment by an assured to his broker is a good discharge of his obligation to the insurer. The two submissions clearly differ because in the former the existence of an obligation in the assured to pay the premiums to the

insurer is denied, whereas in the latter it is accepted but regarded as discharged by payment to the broker. Thus an assured who made no payment of premiums to his broker would not be liable to the insurer under the primary submission, but would be if the alternative submission were accepted. The circumstances in which trade custom or usage may form the basis for the implication of terms into a contract have been considered in many cases. The cases have established the following propositions: [page 228] (1) The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact.29 The critical dependence of a finding of custom on the facts of the particular case means there is little to be gained by referring (as counsel for [Con-Stan] urged us to do) to the practices of the London marine market in the last century, notwithstanding that those practices formed the basis for the implication, in contracts of marine insurance, of a term similar to the first of the terms alternatively contended for in this case. … (2) There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract. … In the words of Jessel MR: [The custom] must be so notorious that everybody in the trade enters into a contract with that usage as an implied term. It must be uniform as well as reasonable, and it must have quite as much certainty as the written contract itself.30 However, it is not necessary that the custom be universally accepted, for such a requirement would always be defeated by the denial by one litigant of the very matter that the other party seeks to prove in the proceedings. (3) A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement. …

One explanation of this principle is that, in so far as it relates to written contracts, it is simply an application of the parol evidence rule, by which extrinsic evidence is generally inadmissible to add to, vary or contradict the express terms of a contract which has been reduced to writing. … A more fundamental explanation is that the presumed intention of the parties, on which the importation of the custom rests, … must yield to their actual intention as embodied in the express terms of the contract, regardless of whether the contract is written or oral. It has sometimes been said that the implication of a term into a contract does not depend on the parties’ intention, actual or presumed, but on broader considerations. … But these statements are directed to situations in which the courts have been asked to imply terms amounting to rules of law applicable to all contracts of a particular class. The present case is of a different kind in which it may be necessary to speak of presumed intention. In matters of this kind, that phrase means no more than that the general notoriety of the custom makes it reasonable to assume that the parties contracted on the basis of the custom, and that it is therefore reasonable to import such a term into the contract. (4) A person may be bound by a custom notwithstanding the fact that he had no knowledge of it. Historically the courts approached this question in a rather different way. It was said that, as a general rule, a person who was ignorant of the existence of a custom or usage was not bound by it. To this rule there was a qualification that a person would be presumed to know of the usage if it was of such notoriety that all persons dealing in that sphere could easily ascertain the nature and content of the custom. It would then be reasonable to impute that knowledge to a person, notwithstanding his ignorance [page 229] of it.31 In this way, the issue of notoriety discussed in (2) above came to be co-extensive with the question of imputed knowledge. The achievement of sufficient notoriety was both a necessary and sufficient

condition for knowledge of a custom to be attributed to a person who was in fact unaware of it. The result is that in modern times nothing turns on the presence or absence of actual knowledge of the custom; that matter will stand or fall with the resolution of the issue of the degree of notoriety which the custom has achieved. [Norwich’s] contention that industry practices unknown to the assured are incapable of forming the basis of an implied term of the contract cannot be sustained. In order to establish a custom to the effect that a broker is alone liable to an insurer for payment of a premium on a policy of insurance, it is not sufficient to show that in the ordinary course of events the premium is paid to the insurer by the broker, nor is it sufficient to show that where a broker has failed to pay a premium the insurer makes its first demand for payment from the broker. Both circumstances are consistent with the continued liability of the assured. It is necessary to establish a clear course of conduct under which insurers do not look to the assured for payment of the premium. This may be established by proving either an absence of claims by insurers against assured, or the existence of claims directed exclusively to brokers as a practice rarely if ever departed from. Having examined the evidence of custom that was led in the present case, we do not think this requirement is satisfied. The evidence to which we shall refer shortly revealed a number of instances of insurers seeking a second payment from the assured notwithstanding that they had already paid their brokers. … In the Court of Appeal, Hutley JA did not regard [evidence before the trial judge of the number of cases in which an insurer sought to recover a second payment from an assured following a broker’s default] as destroying the custom alleged. He said: The fact that there are occasional departures from a uniform course of business does not prove the non-existence of a custom — otherwise no custom would ever be proved because those denying its existence in the instant case could, by their own eccentric conduct, destroy it as a legal custom. The fact that one soldier is out of step does not show that it is not customary for troops to march in step on parade.32

The existence of a custom sufficiently settled in its observance to found the implication of a term into a contract is very much a matter of fact and degree, but, with respect to his Honour [the trial judge], we do not share his view of the effect of the evidence just cited. This evidence supports the inference that, at least since 1973, it was a not uncommon view of those involved in the industry that insurers were entitled to look past the broker for payment of the premium. … In our opinion, in the light of this evidence, it is not possible to say that the custom alleged has been proved to the high standard which the law requires. It has not been shown that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract.

[page 230]

Comment 11.5.1 See Radan, Gooley, and Vickovich at 11.44–11.47.

IMPLIED TERMS OF GOOD FAITH 10.6C

Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558

Court: Court of Appeal of the Supreme Court of New South Wales Facts: Burger King franchised its fast food business in Australia to Hungry Jack’s, while continuing to operate outlets under its own name. After a series of disputes and varied agreements over some years, the parties entered into four new agreements in 1990. One of the agreements related to the development by Hungry Jack’s of a specified number of new restaurants across Australia every year,

either by itself or through third-party franchisees. It was required to obtain operational, financial, and legal approval for each restaurant from Burger King, which had ‘sole discretion’ in that regard. At the same time Burger King was actively looking to consolidate its position in the Australian fast food market and attempted unsuccessfully to buy the Hungry Jack’s brand. Burger King then imposed several restrictive measures on Hungry Jack’s, including payment of nonrefundable deposits on each new outlet, a freeze on the appointment of third-party franchisees, and the withdrawal of financial and operational support. Under such pressure Hungry Jack’s fell behind in its contractual obligation to develop new outlets on time. Burger King purported to terminate the development agreement for this breach. Hungry Jack’s then challenged the validity of the termination and alleged Burger King had also breached the agreement through its restrictive actions. Hungry Jack’s was awarded damages and equitable compensation by the Supreme Court, which also ordered the formation of new franchise agreements with a number of new franchisee restaurants. Burger King appealed. Issues: The issues before the Court of Appeal were, inter alia, whether there were implied terms of good faith and reasonableness in the development agreement and, if there were, whether there was breach of those terms when Burger King imposed the freeze on new franchise appointments and withdrew its financial and operational support. Decision: The Court of Appeal (Sheller, Beazley, and Stein JJA) held that the development agreement was subject to implied terms of cooperation, good faith, and reasonableness, and that Burger King had breached those terms by imposing the third-party freeze and withdrawing financial and operational approvals. Extract: The extracts from the joint judgment of the bench indicate the basis upon which the appeal court arrived at its decision regarding the implication of a duty of good faith and its breach on the facts of the case. (Note that the extracts are based on the medium neutral citation [2001] NSWCA 187, as the judgment is only partially reported in the New South Wales Law Reports.)

[page 231]

Sheller, Beazley, and Stein JJA [146] Until Renard, there had only been tentative acceptance in Australian jurisprudence of an implied term of good faith. However, in Renard Priestley JA said … :33 … that people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations. … [150] His Honour also observed that the American experience indicated that judges used the notion of good faith flexibly as an ‘excluder’. In other words, the concept ‘serve[d] to exclude many heterogeneous forms of bad faith’ so as ‘to do justice according to law.’ … [151] In seeking to find a place for the established American jurisprudence in Australian law, Priestley JA drew upon a wide source of material. We wish to refer only to two of those sources. First, there is the well documented Australian experience of controlling the operation of general rescission clauses by preventing their use ‘for improper and extraneous purposes’. … Secondly, there are the many statutory provisions, which require contracting parties in a variety of circumstances to act reasonably and fairly. … [155] In Alcatel,34 Sheller JA (Powell and Beazley JJA agreeing) accepted that there could be an obligation of good faith implied into commercial contracts. … [159] A review of cases since Alcatel indicates that courts in various Australian jurisdictions have, for the most part, proceeded upon an assumption that there may be implied, as a legal incident of a commercial contract, terms of good faith and reasonableness. … [163] [T]he case law post Alcatel indicates that obligations of good faith and

reasonableness will be more readily implied in standard form contracts, particularly if such contracts contain a general power of termination. Clearly, however, the cases where these terms are to be implied are not limited to standard form agreements. Alcatel itself, which involved a 50 year lease agreement of commercial premises, provides an example of a one off contract where such terms were implied. … [164] There also appears to be increasing acceptance … that if terms of good faith and reasonableness are to be implied, they are to be implied as a matter of law. We consider that to be correct. … [165] Traditionally, specific terms have been implied as a matter of law into contracts of a certain class. Examples include contracts between employer/employee (implied term not to disclose secret processes), for the sale of goods (implied terms of reasonable fitness and merchantable quality and that payment and delivery of goods are concurrent obligations), for the provision of work and materials, between landlord and tenant (implied term that [page 232] premises will be reasonably fit for habitation) and in contracts of carriage by sea (an implied warranty of seaworthiness). … [169] [T]he Australian cases make no distinction of substance between the implied term of reasonableness and that of good faith. As Priestley JA said in Renard … : ‘The kind of reasonableness I have been discussing seems to me to have much in common with the notions of good faith’.35 [170] Priestley JA commented further that: … in ordinary English usage there has been constant association between the words fair and reasonable. Similarly there is a close association of ideas between the terms unreasonableness, lack of good faith and unconscionability.36 [171] Rolfe J observed that in Alcatel, Sheller JA … appeared to equate the notions of ‘reasonableness’ and ‘good faith’. … In addition to his references to Renard, Sheller JA referred to the statement of Sir Anthony Mason in his

1993 Cambridge Lecture, that it was probable that the concept of good faith ‘embraced no less than three related notions’: (1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); (2) compliance with honest standards of conduct; and (3) compliance with standards of contract which are reasonable having regard to the interests of the parties. … [183] In our opinion, [Hungry Jack’s] submission must be correct. There is such an extraordinary range of detailed considerations, particularly in relation to whether operational requirements have been satisfied, contained within cl 4.1(a), that unless there was an implied requirement of reasonableness and good faith, [Burger King] could, for the slightest of breaches, bring to an end the very valuable rights which [Hungry Jack’s] had under the Development Agreement. Further, contrary to [Burger King’s] submissions, cl 4 does not contain only objective criteria against which the discretion is to be exercised. There are many subjective, evaluative notions involved. The reflection of ‘an acceptable Burger King image’ is one example. … [184] The meaning of cl 4.1(b) provides further support for the implication of these terms. That clause requires that for the purposes of financial approval, [Hungry Jack’s] stores must all be performing their obligations under their individual franchise agreements and [Hungry Jack’s] must not be in default of any of its financial obligations to [Burger King]. These two criteria qualify as objective benchmarks against which to grant, or not to grant, financial approval. However, [Burger King] contended that [Hungry Jack’s] obligations under cl 4.1(b) went further and that the provision that [Hungry Jack’s] ‘acknowledges and agrees that it is vital to [Burger King’s] interest that a franchisee be financially sound to avoid a business failure affecting the reputation and good name of the Burger King marks’ imposed [page 233] a contractual requirement to that effect on [Hungry Jack’s]. The other possible construction of this part of cl 4.1(b), and that favoured by [Hungry

Jack’s], is that it was no more than an acknowledgment of a particular circumstance and did not impose a contractual obligation. [185] For present purposes, and without deciding the matter, we propose to assume that [Burger King’s] submission on this is correct and that this part of cl 4(1)(b) has contractual content. Once that assumption is made, it can be immediately seen that the provision is also wide and can have both an objective and subjective content. That being so, it reinforces our view that [Burger King’s] contractual powers under cl 4.1 are to be exercised in good faith and reasonably. That does not mean that [Burger King] is not entitled to have regard only to its own legitimate interests in exercising its discretion. However, it must not do so for a purpose extraneous to the contract — for example, by withholding financial or operational approval where there is no basis to do so, so as to thwart [Hungry Jack’s] rights under the contract. [186] In conclusion, therefore, we are of the opinion that the Development Agreement is subject to implied terms of reasonableness and good faith and [the trial judge] was correct to so find. … [223] In summary, the position in relation to the third party freeze was as follows. Except to the extent that [Hungry Jack’s Franchise Recruitment and Development Manager] agreed to a temporary and short term suspension of third party franchisee recruitment, we are satisfied that [Hungry Jack’s] did not consent to the imposition of the freeze. [Burger King] did not seek to support the freeze on any contractual basis. The freeze was imposed at a time when [Burger King] had made a policy decision to, in some way, take back the Australian market. It was clear that what was meant by this was that it was actively seeking ways to at least reduce [Hungry Jack’s] dominant role if it could not remove it from the market altogether. One of the means available to [Hungry Jack’s] to both satisfy the development schedule and to develop generally was through third party franchisee arrangements. [Hungry Jack’s] was precluded from doing so from mid May 1995 at a time when there was evidence that there was active interest by prospective franchisee applicants. Although in May 1995 there may have been a reasonable basis to suspend the processing of applications for a short time, there was no basis for [Burger King] to do so from at least early June 1995 onwards.

[224] We consider, therefore, that the continued imposition of the freeze was in breach of the implied terms of reasonableness and good faith. … [306] First, [Burger King] asserted a right to conduct an annual financial review when it had no right to do so. [307] Secondly, [Burger King’s] conduct at this time could not properly be characterised as an annual financial review of [Hungry Jack’s]. At least by late October/early November 1995, the analysis had shifted to an investigation of the Competitive Foods Group, as evidenced by the fact that, commencing from [Burger King’s Senior Vice President’s] letter of 8 November 1995, no further requests were made in relation to [Hungry Jack’s] accounts. All enquiries and requests related to the Competitive Foods Group. However, even if [Burger King] was conducting an annual financial review and such review was permitted by the Development [page 234] Agreement, the Development Agreement did not authorise withdrawal of financial approval pending completion of the review. [308] Next, [Burger King’s] failure to grant financial approval after the time it had assessed [Hungry Jack’s] as having complied with its ratios, was a breach of the implied term of good faith. … [310] In our opinion, the evidence clearly establishes that [Burger King’s] conduct is properly characterised as being directed not to furthering its legitimate rights under the Development Agreement but to preventing [Hungry Jack’s] from performing its obligations under the Development Agreement. … [368] In our opinion, all these matters: namely, the failure to deliver a list of restaurants in the ‘Needs Improvement’ category; the failure to forward the Franchise Action Plan to [Hungry Jack’s] until October 1995; the failure to comply with its side of the process specified in detail in the Expansion Policy of at least ten visits per year, was unreasonable and lacking in good faith in the sense in which we have explained those concepts. … [370] Accordingly, we agree with [the trial judge’s] conclusion that [Burger

King] had not established that it was entitled in its sole discretion to operationally disapprove [Hungry Jack’s]. … [429] In the result, we have found that [the trial judge’s] findings that there were implied terms of good faith and reasonableness and that those terms … were breached were correct.

Comment 11.6.1 See Radan, Gooley, and Vickovich at 11.50, 11.60, 11.68, 11.75, 11.76, and 11.79.

1.

Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227.

2. 3.

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283. BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283.

4. 5.

Hawkins v Clayton (1988) 164 CLR 539 at 573. (1977) 180 CLR 266 at 283.

6.

7.

These include Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605–6; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 351–2; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 65–6, 95, 117–18, 121; Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 435; Adelaide City Corp v Jennings Industries Ltd (1985) 156 CLR 274 at 281–2; Hawkins v Clayton (1988) 164 CLR 539 at 571–3. (1994) 120 ALR 274 at 332.

8. 9.

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 121. Hawkins v Clayton (1988) 164 CLR 539 at 573.

10. 11.

Esso Australia Resources Ltd v Plowman (1995) 128 ALR 391 at 401–2. Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 at 647–8, 659.

12. 13.

Hon Michael McHugh, ‘The Judicial Method’, (1999) 73 Australian Law Journal 37 at 48. [1992] 177 CLR 292 at 320.

14. 15.

Such implications are made when the conditions set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 are satisfied. The custom or usage must be notorious, certain, legal and reasonable. See Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 236–7; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 423–4.

16. 17.

(1982) 149 CLR 337 at 345. [2009] 2 All ER 1127.

18. 19.

[2009] 2 All ER 1127 at 1134. (1986) 160 CLR 226 at 237.

20.

(1979) 144 CLR 596 at 607.

21. 22.

(1881) 6 App Cas 251 at 263. Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607.

23.

Malik v Bank of Credit and Commerce International SA (In Compulsory Liquidation) [1998] AC 20 at 45. (1996) 186 CLR 71.

24. 25.

26.

See eg Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84; Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666; Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597. See generally Lindsay, ‘The Implied Term of Trust and Confidence’, (2001) 30 Industrial Law Journal 1. See eg Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144; Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186; Irving v Kleinman [2005] NSWCA 116; Delooze v Healey [2007] WASCA 157; Shaw v New South Wales (2012) 219 IR 87.

27. 28.

(2009) 104 SASR 344 at 388. Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at 322; Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 at 55.

29. 30.

Nelson v Dahl (1879) 12 Ch D 568 at 575. Nelson v Dahl (1879) 12 Ch D 568 at 575; approved by Knox CJ in Thornley v Tilley (1925) 36 CLR 1 at 8.

31. 32.

See Halsbury’s Laws of England 4th ed, vol 12, paras 467–8; Jones v Canavan [1972] 2 NSWLR 236 at 243. [1983] 1 NSWLR 461 at 466.

33. 34.

Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 at 268. Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349.

35. 36.

Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 at 263. Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 at 265.

[page 235]

12 CONSTRUCTION OF CONTRACTUAL TERMS

INTRODUCTION 12.1 This chapter deals with the general principles of the construction or interpretation of contractual terms. In ascertaining the meaning of the terms of a contract, the court is primarily concerned with objectively determining the intention of the parties: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109. In achieving this objective a court will seek to give the words used their natural and ordinary meaning, although where technical words or phrases are incorporated into a contract, there is a rebuttable presumption that they are used with that technical meaning in mind: Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [167]–[170]. In determining the objective meaning of contractual terms, there has been considerable debate as to the extent to which the court can use evidence of surrounding circumstances. In Australia the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 (see 12.2C) states that such circumstances can only be used in cases where the language used is ambiguous or susceptible to more than one meaning. Reaffirmation of that approach is illustrated in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 (see 12.3C). This is in contrast to the approach in the United Kingdom, where the use of surrounding circumstances does not require ambiguity in the language used

by the contracting parties: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98. An important rule in contractual construction is the parol evidence rule. This rule of evidence precludes the use of the contractual parties’ precontractual negotiations as an aid in ascertaining the meaning of the contract: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1011 (see 12.4C). The rule also precludes the use of the parties’ post-contract conduct as an aid in ascertaining the meaning of the language used. Both parts of the parol evidence rule have been the subject of considerable controversy. However, the prior negotiations rule was recently confirmed by the High Court of Australia in Byrnes v Kendle (2011) 243 CLR 253 at 284–5, as was the postcontract conduct rule in Agricultural and Rural Finance Ltd v Gardiner (2008) 238 CLR 570 at 582. [page 236]

GENERAL PRINCIPLES OF CONSTRUCTION OF TERMS 12.2C

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Court: High Court of Australia Facts: The State Rail Authority (SRA) accepted Codelfa’s tender in relation to excavation work required for the construction of the Eastern Suburbs Railway in Sydney. Construction of the railway was authorised by statute, which included a provision granting the SRA immunity from prosecution for nuisance. The parties agreed that Codelfa was to complete its work within 130 weeks from commencement. It was expressly agreed that Codelfa would bear all necessary costs for the work at an agreed price regardless of the difficulties it might encounter. In order to complete on time, Codelfa calculated it would need to work three eight-hour shifts per day for six days per week, as well as certain work on Sundays. However, local residents obtained an injunction against Codelfa, which mistakenly

assumed it was protected by SRA’s statutory immunity. This meant that work could not proceed between 10 pm and 6 am on the six days or at all on Sundays. The SRA refused Codelfa’s claim for additional costs and the dispute proceeded to arbitration. Issue: An issue before the High Court was whether the injunctions issued by the Supreme Court frustrated the contract between Codelfa and the SRA. The court also had to consider Codelfa’s claim that there was an implied term that the SRA would grant a reasonable extension of time and indemnify Codelfa against additional costs occasioned by the grant of the injunctions. Decision: In a majority decision the High Court (Stephen, Mason, Aickin, and Wilson JJ; Brennan J dissenting) held that the injunctions fundamentally or radically changed the circumstances of the contract, such that the contract was frustrated. The court unanimously held that there was no implied term as claimed by Codelfa. Extract: The extract from the judgment of Mason J discusses the rule that contracts are to be construed objectively and the extent to which surrounding circumstances can be used in the process of construction.

Mason J [T]here is a question whether … [the] authorities support the … view that it is legitimate to take into account the common beliefs of the parties as developed and manifested during their antecedent negotiations. The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument.1 Although the traditional expositions of the rule did [page 237]

not in terms deny resort to extrinsic evidence for the purpose of interpreting the written instrument, it has often been regarded as prohibiting the use of extrinsic evidence for this purpose. No doubt this was due to the theory which came to prevail in English legal thinking in the first half of this century that the words of a contract are ordinarily to be given their plain and ordinary meaning. Recourse to extrinsic evidence is then superfluous. At best it confirms what has been definitely established by other means; at worst it tends ineffectively to modify what has been so established. On the other hand, it has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning. … This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. So Lord Wilberforce in L Schuler AG v Wickman Machine Tool Sales Ltd was able to state the broad thrust of the rule in this way: The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used. It is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive.2 His Lordship noted that evidence of surrounding circumstances is an exception to the rule, but he had no occasion to discuss its scope for there it was not, as it is here, a critical question. However, as Lord Wilberforce had earlier pointed out in his speech in Prenn [v Simmonds] … the English rule forbidding recourse to extrinsic evidence is not as strict as some have thought. … [In that case] Lord Wilberforce said: The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, antiliteral, tendencies, for Lord

Blackburn’s well-known judgment in River Wear Commissioners v Adamson3 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald v Longbottom)4 it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term.5 … [I]n Great Western Railway and Midland Railway v Bristol Corporation, Lord Atkinson6 and Lord Shaw7 stated that evidence of surrounding circumstances was inadmissible except [page 238] to resolve an ambiguity, that is, where the words are susceptible of more than one meaning. … Their Lordships took the view that evidence of surrounding circumstances was not admissible to raise an ambiguity for in their opinion that would be to contradict or vary the words of the written document, the assumption being that in the overwhelming majority of cases the written words will have a fixed meaning. Lord Wrenbury8 thought otherwise, stating that in every case of construction extrinsic evidence is receivable to raise and resolve an ambiguity. Lord Wilberforce in Prenn did not discuss these competing views, perhaps because the difference between them is more apparent than real. However, I doubt whether English and United States use of extrinsic evidence for the purpose of interpretation is quite as uniform as his Lordship appeared to think. Lord Wilberforce returned to the same theme in Reardon Smith [Line v Hansen-Tangen]. In a speech concurred in by a majority of the members of the House of Lords he acknowledged that it is legitimate ‘to have regard to … “the surrounding circumstances”’.9 He went on to say: In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn

presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.10 After discussing [several other cases], his Lordship continued: It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively — the parties cannot themselves give direct evidence of what their intention was — and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.11 His Lordship thought that this approach was supported by the speeches in Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd12 and Charrington & Co Ltd v Wooder.13 He expressed the conclusion to be drawn from them in this way: … what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular [page 239] interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those

facts from forming part of an objective setting in which the contract is to be construed. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, Stephen and Jacobs JJ and I, following Prenn, in a joint judgment said: A court may admit evidence of surrounding circumstances in the form of ‘mutually known facts’ ‘to identify the meaning of a descriptive term’ and it may admit evidence of the ‘genesis’ and objectively the ‘aim’ of a transaction to show that the attribution of a strict legal meaning would ‘make the transaction futile’.14 … The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence,

and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

[page 240]

Comments 12.2.1 See Radan, Gooley, and Vickovich at 12.16–12.19, 12.32, 12.38, 12.66, and 12.74. 12.2.2 A significant issue in recent years has been whether the approach set out by Mason J differs from the approach set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1988] 1 All ER 98 at 114, where his Lordship stated that the existence of an ambiguity was not necessary before surrounding circumstances could be used in construing a contract. In 2011, in the wake of considerable judicial and academic discussion on this question, the High Court in Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 at 605 reaffirmed the approach adopted by Mason J. 12.3C

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Court: High Court of Australia Facts: Electricity Generation Corporation, trading as Verve Energy, entered into an agreement to purchase natural gas from Woodside Energy Ltd for use in Verve’s power stations. In addition to the gas that Woodside was required to supply daily, cl 3.3(a) of the agreement provided that it was obliged to use ‘reasonable

endeavours’ to make available to Verve a supplemental maximum daily quantity (SMDQ) of gas. To determine whether Woodside was able to supply the SMDQ, cl 3.3(b) of the agreement permitted it take into account ‘all relevant commercial, economic and operational matters’. An explosion at a gas plant in June 2008 led to a temporary shortage of supply to the Western Australian market. Woodside advised Verve that it was not able to supply SMDQ for a period of several months. However, it did offer to supply Verve with a quantity of gas equivalent to SMDQ for that period at the higher prevailing market price. Verve paid the higher price under protest and then began proceedings on the basis that Woodside had breached its contractual obligation to use ‘reasonable endeavours’ to supply SMDQ. Issue: The issue before the High Court was whether, on a proper construction of the contract, Woodside had failed to use ‘reasonable endeavours’ by supplying SMDQ at the higher market price, rather than the contract price. Decision: The High Court by majority (French CJ, Hayne, Crennan, and Kiefel JJ; Gageler J dissenting) held that Woodside had not breached the contract. A proper construction of cl 3.3 did not require Woodside to forego or sacrifice its business interests in favour of Verve’s interest in obtaining SMDQ at the lower contract price when using reasonable endeavours to make SMDQ available to Verve. Extract: The extracts below from the joint majority judgment shed light on the interpretation of the contractual obligation to use ‘reasonable endeavours’.

[page 241]

French CJ, Hayne, Crennan, and Kiefel JJ The crucial issue of construction is the relationship between [Woodside’s] obligation in cl 3.3(a) to ‘use reasonable endeavours’ to make SMDQ available for delivery to Verve, and [its] entitlement under cl 3.3(b),

in determining whether they ‘are able to supply SMDQ’ on any particular day, to take into account all relevant commercial, economic and operational matters. Relevantly, cl 4.2 obliges Verve, in each contract year, to pay [Woodside] for an Annual Minimum Quantity of gas (AMQ), whether or not Verve has taken that quantity. Further, cl 4.3 contains calculations for a minimum quantity which is subject to offsets. The prices for all gas delivered under the [gas supply agreement] (GSA) are set out in cl 6. Subject to price reviews, cl 6 contains price tranches referable to quantities, tranche 3 being the price applicable to gas delivered … in excess of MDQ [maximum daily quantity (of gas)], thus the price for SMDQ. Other features of the GSA which bear on the construction issue must also be mentioned. As to supply, Verve is not obliged to nominate any SMDQ for supply from [Woodside], and [Woodside] are not obliged to reserve daily capacity in their plants to supply SMDQ to Verve, nor to refrain from agreeing to sell gas to third parties. As to payment, Verve’s take or pay obligation applies to MDQ. That obligation does not apply to SMDQ which Verve nominates, but which [Woodside] are unable to supply, to the extent that Verve acquires that gas from another supplier. It was not part of Verve’s case that the practical effect of the take or pay obligation is that Verve would be obliged to pay for SMDQ not taken. Clause 12 provides for restricted capacity and sets out priorities to be followed when capacity is constrained. In relation to defaults under the GSA, cl 22.6 limits the liability of Verve in respect of gas not taken to its liability in accordance with cl 4.2, which imposes the take or pay obligation in respect of AMQ. Clause 22.7 relevantly limits [Woodside’s] liability in respect of a failure to use reasonable endeavours to meet Verve’s nominations of SMDQ. Pursuant to cl 22.7(c), [Woodside’s] liability is limited to a proportionate share of the amount by which Verve’s actual costs incurred in obtaining alternative gas exceed the amount equivalent to the price applicable to SMDQ in the GSA. …

The construction issue

Both Verve and [Woodside] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean.15 That approach is not unfamiliar.16 As reaffirmed, it will require consideration of the language used by the parties, [page 242] the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating.17 As Arden LJ observed in Re Golden Key Ltd,18 unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties … intended to produce a commercial result. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.19 …

Reasonable endeavours Contractual obligations framed in terms of reasonable endeavours or best endeavours (or efforts) are familiar. Argument proceeded on the basis that substantially similar obligations are imposed by either expression. Such obligations are not uncommon in distribution agreements, intellectual property licences, mining and resources agreements and planning and construction contracts. Such clauses are ordinarily inserted into commercial contracts between parties at arm’s length who have their own independent business interests. Three general observations can be made about obligations to use reasonable endeavours to achieve a contractual object. First, an obligation expressed thus is not an absolute or unconditional obligation.20 Second, the nature and extent of an obligation imposed in such terms is necessarily conditioned by what is reasonable in the circumstances, which can include

circumstances that may affect an obligor’s business.21 This was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation,22 which concerned a sole distributor’s obligation to use best efforts to promote the sale of a manufacturer’s products. His Honour said: The qualification [of reasonableness] itself is aimed at situations in which there would be a conflict between the obligation to use best efforts and the independent business interests of the distributor and has the object of resolving those conflicts by the standard of reasonableness. … It therefore involves a recognition that the interests of [the manufacturer] could not be paramount in every case and that in some cases the interests of the distributor would prevail.23 [page 243] As Sellers J observed of a corporate obligor in Terrell v Mabie Todd & Co Ltd,24 an obligation to use reasonable endeavours would not oblige the achievement of a contractual object to the certain ruin of the Company or to the utter disregard of the interests of the shareholders. An obligor’s freedom to act in its own business interests, in matters to which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable endeavours to achieve a contractual object. Thirdly, some contracts containing an obligation to use or make reasonable endeavours to achieve a contractual object contain their own internal standard of what is reasonable, by some express reference relevant to the business interests of an obligor.

Clause 3.3 The GSA, pre-eminently a commercial contract between parties at arm’s length with their own independent business interests, should be given a businesslike interpretation in accordance with the authorities and the approach described above. Broadly described, the chief commercial purpose and objects of the GSA are twofold. First, Verve obtains a secure supply of gas which [Woodside] are

obliged to make available for delivery up to the specified MDQ, and secondly, [Woodside] have an assured price in respect of the specified AMQ, which Verve is obliged to take and pay for, or pay for if not taken. The business interests of the parties coincide in each contract year, but also over the long term, in respect of the quantities of gas which must be delivered by [Woodside] and which must be paid for by Verve, whether taken or not. Those provisions have the effect of insulating the parties from respective risks of fluctuations in demand and price in the context of a large domestic and commercial electricity market, at least to the extent of those quantities and the unconditional obligations imposed in respect of them. A supplementary commercial purpose or object of the GSA is the supply of SMDQ at the tranche 3 price, bearing in mind that, subject to the take or pay obligations for AMQ, Verve is not contractually bound to buy SMDQ from [Woodside] and [Woodside] are not contractually bound to reserve capacity in their plants for SMDQ. The obligation to use reasonable endeavours to supply SMDQ, provided for in cl 3.3, can be readily contrasted with the unconditional obligation to supply MDQ specified in cl 3.2. By way of contrast, the language of cl 3.3(a) is recognisably the language of qualified obligation, and cl 3.3(b) provides an internal standard of reasonableness by which the obligation to use reasonable endeavours to supply SMDQ can be measured. Taken as a whole, cl 3.3 provides for a balancing of interests if the business interests of the parties in respect of the supply of SMDQ do not entirely coincide, or if they conflict. What is a reasonable standard of endeavours obliged by cl 3.3(a) is conditioned both by [Woodside’s] responsibilities to Verve in respect of SMDQ and by [Woodside’s] express entitlement to take into account relevant commercial, economic and operational matters when determining whether they are able to supply SMDQ. Compendiously, the expression commercial, [page 244] economic and operational matters refers to matters affecting [Woodside’s] business interests. The relevant ability to supply is thus qualified, in part, by reference to the constraints imposed by commercial and economic

considerations. The non-exhaustive examples of circumstances in which [Woodside] will not breach the obligation to use reasonable endeavours to supply SMDQ, found in cl 3.3(b)(i), (ii) and (iii), are not confined to capacity (or capacity constraints). The effect of cl 3.3(b) is that [Woodside] are not obliged to forgo or sacrifice their business interests when using reasonable endeavours to make SMDQ available for delivery. Verve’s submission that able should be construed narrowly, so as to refer only to [Woodside’s] capacity to supply, fails to give full effect to the entire text of cl 3.3(b) and must be rejected. The word able in cl 3.3(b) relates to [Woodside’s] ability, having regard to their capacity and their business interests, to supply SMDQ. This is the interpretation which should be given to cl 3.3. The construction which has been accepted is consistent with surrounding circumstances known to both parties at the time of entering the GSA, which include the circumstances that [Woodside] sell and supply gas to customers and buyers in the market other than Verve, some essential services depend on gas supply, and the prevailing market price of gas at any particular time may be greater (or less) than the tranche 3 price in the GSA. Understood as explained above, cl 3.3 did not oblige [Woodside] to supply SMDQ to Verve notwithstanding conflict with their own business interests. Applied to the facts, cl 3.3 did not oblige [Woodside] to supply SMDQ to Verve when the [plant explosion] incident occasioned business conditions leading to conflict between [Woodside’s] business interests and Verve’s interest in obtaining nominated SMDQ at the tranche 3 price. These conclusions render it unnecessary to consider other issues raised by the appeals, including the construction issue in respect of cl 22.7, which imposes a cap on [Woodside’s] liability for default in respect of the supply of SMDQ.

Comment 12.3.1 See Radan, Gooley, and Vickovich at 12.13, 12.26–12.29, and 12.51–12.52.

THE RULE AGAINST EVIDENCE OF PRE-CONTRACTUAL NEGOTIATIONS 12.4C

Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101

Court: House of Lords Facts: Persimmon Homes purchased a development site in Wandsworth from Chartbrook. The contract included a term that required Persimmon Homes to make an additional payment to Chartbrook if Persimmon Homes gained a higher price than anticipated for the residential units to be built on the site. This ‘Additional Residential Payment’ (ARP) was [page 245] defined as ‘23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives’. A dispute arose as to the precise meaning of this term. Chartbrook argued that a literal interpretation of the clause meant that it should receive a total ARP of £4,482,862 — almost doubling the original price paid by Persimmon Homes for the land. Persimmon Homes argued that, taking the commercial purpose of the clause into account, the ARP should come to £897,051. As an alternative argument, Persimmon Homes claimed that evidence relating to the pre-contractual negotiations should be admitted because this evidence also supported its interpretation of the term. Issue: The issue before the House of Lords was the resolution of the contested approaches to the interpretation of the term relating to the ARP. Decision: The House of Lords (Lords Hope of Craighead, Hoffmann, Rodger of Earlsferry, and Walker of Gestingthorpe, and Baroness Hale of Richmond) unanimously held in favour of Persimmon Homes on the basis that an interpretation of ‘additional residential payment’ in

accordance with the ordinary rules of syntax made no commercial sense. It was clear that something had gone wrong with the language used by the parties, in which case it was for the court to correct the error as a matter of construction. In so doing it was clear that the commercial purpose of the clause meant that Persimmon Homes’ argument as to the amount to be paid was correct. Although this ruling determined the outcome of the case in favour of Persimmon Homes and an examination of the parties’ precontractual negotiations was unnecessary, the House of Lords noted that such evidence would not have been admissible in this case in accordance with traditional authority that excludes evidence of precontractual negotiations in the process of the interpretation of contractual terms. Extract: The extract from the speech of Lord Hoffmann, which was endorsed by all the other members of the House of Lords, discusses the general approach to interpretation of contracts, as well as the continued application of the rule that excludes evidence of precontractual negotiations in interpreting contracts.

Lord Hoffmann There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society.25 They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that ‘we do not easily accept that people have made linguistic mistakes, particularly in formal documents’ … but said that in some cases the context and background drove a court to the conclusion that ‘something must have gone wrong with the language’. In such a case, the law [page 246]

did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. It clearly requires a strong case to persuade the court that something must have gone wrong with the language and the judge and the majority of the Court of Appeal did not think that such a case had been made out. On the other hand, Lawrence Collins LJ thought it had. It is, I am afraid, not unusual that an interpretation which does not strike one person as sufficiently irrational to justify a conclusion that there has been a linguistic mistake will seem commercially absurd to another. … The subtleties of language are such that no judicial guidelines or statements of principle can prevent it from sometimes happening. It is fortunately rare because most draftsmen of formal documents think about what they are saying and use language with care. But this appears to be an exceptional case in which the drafting was careless and no one noticed. I agree with the dissenting opinion of Lawrence Collins LJ because I think that to interpret the definition of ARP in accordance with ordinary rules of syntax makes no commercial sense. … When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties … is no reason for not giving effect to what they appear to have meant. In East v Pantiles (Plant Hire) Ltd Brightman J stated the conditions for what he called ‘correction of mistakes by construction’: Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction.26 Subject to two qualifications … I would accept this statement, which is in my opinion no more than an expression of the common sense view that we

do not readily accept that people have made mistakes in formal documents. The first qualification is that ‘correction of mistakes by construction’ is not a separate branch of the law, a summary version of an action for rectification. … The second qualification concerns the words ‘on the face of the instrument’. … [I]n deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration. [page 247] [It] is clear … that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied [in this case]. … There is no need to say anything more. But Persimmon advanced … [an argument] of very considerable general importance and I think it is appropriate that your Lordships deal with [it. The argument is] that (contrary to the unanimous opinion of the judge and the Court of Appeal) the House should take into account the pre-contractual negotiations … [in support of its case as to the interpretation of the contract]. The rule that pre-contractual negotiations are inadmissible was clearly reaffirmed by this House in Prenn v Simmonds, where Lord Wilberforce said that earlier authorities ‘contain little to encourage, and much to discourage, evidence of negotiation or of the parties’ subjective intentions’.27 It is clear that the rule of inadmissibility has been established for a very long time. … To allow evidence of pre-contractual negotiations to be used in aid of construction would therefore require the House to depart from a long and consistent line of authority, the binding force of which has frequently been acknowledged. The House is nevertheless invited to do so, on the

ground that the rule is illogical and prevents a court from … putting itself in the position of the parties and ascertaining their true intent. In Prenn v Simmonds Lord Wilberforce said by way of justification of the rule [that excludes evidence of pre-contractual negotiations]: The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties’ positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to. It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. … And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found. But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping [page 248] to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because

that is the only way to get ‘agreement’ and in the hope that disputes will not arise. The only course then can be to try to ascertain the ‘natural’ meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party’s objective — even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised.28 Critics of the rule … point out that although all this may usually be true, in some cases it will not. Among the dirt of aspirations, proposals and counter-proposals there may gleam the gold of a genuine consensus on some aspect of the transaction expressed in terms which would influence an objective observer in construing the language used by the parties in their final agreement. Why should court deny itself the assistance of this material in deciding what the parties must be taken to have meant? … [H]owever … it would not be inconsistent with the English objective theory of contractual interpretation to admit evidence of previous communications between the parties as part of the background which may throw light upon what they meant by the language they used. The general rule … is that there are no conceptual limits to what can properly be regarded as background. Prima facie, therefore, the negotiations are potentially relevant background. They may be inadmissible simply because they are irrelevant to the question which the court has to decide, namely, what the parties would reasonably be taken to have meant by the language which they finally adopted to express their agreement. For the reasons given by Lord Wilberforce, that will usually be the case. But not always. In exceptional cases … a rule that prior negotiations are always inadmissible will prevent the court from giving effect to what a reasonable man in the position of the parties would have taken them to have meant. Of course judges may disagree over whether in a particular case such evidence is helpful or not. In Yoshimoto v Canterbury Golf International Ltd,29 Thomas J thought he had found gold in the negotiations but the Privy Council said it was only dirt. As I have said, there is nothing unusual or surprising about

such differences of opinion. In principle, however, I would accept that previous negotiations may be relevant. It therefore follows that while it is true that, as Lord Wilberforce said, inadmissibility is normally based in irrelevance, there will be cases in which it can be justified only on pragmatic grounds. I must consider these grounds, which have been explored in detail in the literature and on the whole rejected by academic writers but supported by some practitioners. The first is that the admission of pre-contractual negotiations would create greater uncertainty of outcome in disputes over interpretation and add to the cost of advice, litigation or arbitration. Everyone engaged in the exercise would have to read the correspondence and statements would have to be taken from those who took part in oral negotiations. Not only [page 249] would this be time-consuming and expensive but the scope for disagreement over whether the material affected the construction of the agreement … would be considerably increased. As against this, it is said that when a dispute over construction is litigated, evidence of the precontractual negotiations is almost invariably tendered in support of an alternative claim for rectification … or an argument based on estoppel by convention or some alleged exception to the exclusionary rule. Even if such an alternative claim does not succeed, the judge will have read and possibly been influenced by the evidence. The rule therefore achieves little in saving costs and its abolition would restore some intellectual honesty to the judicial approach to interpretation. There is certainly a view in the profession that the less one has to resort to any form of background in aid of interpretation, the better. The document should so far as possible speak for itself. … I do not think that these opinions can be dismissed as merely based upon the fallacy that words have inherent or ‘available’ meanings, rather than being used by people to express meanings, although some of the arguments advanced in support might suggest this. It reflects what may be a sound practical intuition that the law of contract is an institution designed to

enforce promises with a high degree of predictability and that the more one allows conventional meanings or syntax to be displaced by inferences drawn from background, the less predictable the outcome is likely to be. In this respect, it is interesting to consider the reaction to the statement of principle in Investors Compensation Scheme Ltd v West Bromwich Building Society,30 which was viewed with alarm by some distinguished commercial lawyers as having greatly increased the quantity of background material which courts or arbitrators would be invited to conside. … [However,] there was little in that statement of principle which could not be found in earlier authorities. The only points it decided that might have been thought in the least controversial were, first, that it was not necessary to find an ‘ambiguity’ before one could have any regard to background and, secondly, that the meaning which the parties would reasonably be taken to have intended could be given effect despite the fact that it was not, according to conventional usage, an ‘available’ meaning of the words or syntax which they had actually used. … I rather doubt whether the ICS case produced a dramatic increase in the amount of material produced by way of background for the purposes of contractual interpretation. But pre-contractual negotiations seem to me capable of raising practical questions different from those created by other forms of background. Whereas the surrounding circumstances are, by definition, objective facts, which will usually be uncontroversial, statements in the course of pre-contractual negotiations will be drenched in subjectivity and may, if oral, be very much in dispute. It is often not easy to distinguish between those statements which (if they were made at all) merely reflect the aspirations of one or other of the parties and those which embody at least a provisional consensus which may throw light on the meaning of the contract which was eventually concluded. But the imprecision of the line between negotiation and provisional agreement is the very reason why in every case of dispute over interpretation, one or other [page 250] of the parties is likely to require a court or arbitrator to take the course of

negotiations into account. Your Lordships’ experience in the analogous case of resort to statements in Hansard under the rule in Pepper v Hart31 suggests that such evidence will be produced in any case in which there is the remotest chance that it may be accepted and that even these cases will be only the tip of a mountain of discarded but expensive investigation. Pepper v Hart has also encouraged ministers and others to make statements in the hope of influencing the construction which the courts will give to a statute and it is possible that negotiating parties will be encouraged to improve the bundle of correspondence with similar statements. … In his judgment in the present case, Briggs J thought that the most powerful argument against admitting evidence of pre-contractual negotiations was that it would be unfair to a third party who took an assignment of the contract or advanced money on its security. Such a person would not have been privy to the negotiations and may have taken the terms of the contract at face value. There is clearly strength in this argument, but it is fair to say that the same point can be made … in respect of the admissibility of any form of background. The law sometimes deals with the problem by restricting the admissible background to that which would be available not merely to the contracting parties but also to others to whom the document is treated as having been addressed. Thus … The Starsin Homburg Houtimport BV v Agrosin Private Ltd32 the House of Lords construed words which identified the carrier on the front of a bill of lading without reference to what it said on the back, on the ground that the bankers to whom the bill would be tendered could not be expected to read the small print. Ordinarily, however, a contract is treated as addressed to the parties alone and an assignee must either inquire as to any relevant background or take his chance on how that might affect the meaning a court will give to the document. The law has sometimes to compromise between protecting the interests of the contracting parties and those of third parties. But an extension of the admissible background will, at any rate in theory, increase the risk that a third party will find that the contract does not mean what he thought. How often this is likely to be a practical problem is hard to say. … The conclusion I would reach is that there is no clearly established case for departing from the exclusionary rule. The rule may well mean … that parties are sometimes held bound by a contract in terms which, upon a full

investigation of the course of negotiations, a reasonable observer would not have taken them to have intended. But a system which sometimes allows this to happen may be justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes. It is, after all, usually possible to avoid surprises by carefully reading the documents before signing them and there are the safety nets of rectification and estoppel by convention. Your Lordships do not have the material on which to form a view. It is possible that empirical study (for example, by the Law Commission) may show that the alleged disadvantages of admissibility are not in practice very significant or that they are outweighed by the advantages of doing more precise justice in exceptional cases or falling into line with international conventions. But the determination of where the balance of advantage lies is not in my opinion suitable for judicial decision. … [page 251] The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it.

Comments 12.4.1 See Radan, Gooley, and Vickovich at 12.5, 12.15, 12.41, and 12.64–12.69. 12.4.2 For discussions of whether the rule against admitting evidence of pre-contractual negotiations should be abolished or maintained, see Lord Nicholls of Birkenhead, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 Law Quarterly Review 577; J J Spigelman, ‘From Text to Context: Contemporary Contractual Interpretation’ (2007) 81 Australian Law Journal 322; D McLauchlan,

‘Contract Interpretation: What Is It About?’ (2009) 31 Sydney Law Review 1; C Mitchell, ‘Contract Interpretation: Pragmatism and the Prior Negotiations Rule’ (2010) 26 Journal of Contract Law 134; and J E Bailey, ‘Prior Negotiations and Subsequent Conduct in Contract Interpretation: Principles and Practical Concerns’ (2011) 28 Journal of Contract Law 179. 12.4.3 In R Catterwell, ‘The “Indirect” Use of Evidence of Prior Negotiations and the Parties’ Intentions in Contract Construction: Part of the Surrounding Circumstances’ (2012) 29 Journal of Contract Law 183, the author discusses the extent to which evidence of pre-contractual negotiations colours the background against which contracts are interpreted in Australia.

1.

Goss v Lord Nugent (1833) 110 ER 713 at 716.

2. 3.

L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261. [1877] 2 App Cas 743 at 763.

4. 5.

(1859) 120 ER 1177. Prenn v Simmonds [1971] 1 WLR 1381 at 1383–4.

6. 7.

Great Western Railway and Midland Railway v Bristol Corporation [1918] LJ Ch 414 at 418–19. Great Western Railway and Midland Railway v Bristol Corporation [1918] LJ Ch 414 at 424–5.

8. 9.

Great Western Railway and Midland Railway v Bristol Corporation [1918] LJ Ch 414 at 429. Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995.

10. 11.

Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995–6. Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 996.

12. 13.

[1933] 39 Com Cas 1. [1914] AC 71 at 77, 70, 82.

14. 15.

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429. McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188. See also Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737.

16.

See, for example, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199; see generally Lord Bingham of Cornhill, ‘A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision’ (2008) 12 Edinburgh Law Review 374. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350. See also Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559; International Air Transport Association v

17.

Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160. 18. 19.

[2009] EWCA Civ 636 at [28]. Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464.

20. 21.

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 144; Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd (2011) 282 ALR 152 at 163. Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 at 101.

22. 23.

(1984) 156 CLR 41 at 91–2. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 92.

24. 25.

(1952) 69 RPC 234 at 236. [1998] 1 WLR 896 at 912–13.

26. 27.

East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61. Prenn v Simmonds [1971] 1 WLR 1381 at 1384.

28. 29.

Prenn v Simmonds [1971] 1 WLR 1381 at 1384. [2001] 1 NZLR 523.

30. 31.

[1998] 1 WLR 896 at 912–13. [1993] AC 593.

32.

[2004] 1 AC 715.

[page 252]

13 CONSTRUCTION OF EXCLUSION CLAUSES

INTRODUCTION 13.1 This chapter deals with exclusion clauses, which are terms that seek to exclude or limit the liability of one or both contracting parties for breach of a contract or for breach of some statutory or tortious obligation. Such clauses are often used in commercial contracts, with parties apportioning and negotiating over the risk of loss in their transactions. Generally, a party seeking to enforce the clause will need to establish on the evidence that it is incorporated as an express term of the contract and, if so, that it does on its proper construction adequately cover the liability that has arisen. The issue of incorporation is covered in Chapter 10, whereas this chapter deals with the construction or interpretation of the term. Once the clause is held to be an express term of the contract, a court will attempt to objectively determine the true intention of the parties. The general approach to this end is that taken by the High Court in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 (see 13.2C), which sets out two fundamental principles: first, an exclusion clause should be construed according to its natural and ordinary meaning, read in the light of the contract as a whole and the context in which it appears; second, any ambiguity in its meaning is resolved according to the contra proferentem rule, by which the clause will be construed against the party relying on the clause. In the context of commercial contracts, courts are more likely than in the past to uphold an

exclusion clause that is clearly incorporated and expressed unambiguously, notwithstanding that it may have severe consequences for one or other of the parties. In consumer contracts, however, exclusion clauses are interpreted less liberally in order to protect vulnerable consumers and are often specifically prohibited by statute, such as in the Australian Consumer Law. Where a contracting party seeks to exclude or limit its liability — not only for breach of contract but also for negligence during the performance of its contractual obligations — it must be clearly intended that the clause covers negligence. This will generally be the case where negligence is expressly referred to in the clause. If it is not, liability for negligence may still be excluded if the words used are wide enough to exclude negligence. However, if the words are so wide as to also encompass other grounds for liability, the clause will be read as applying only to those other grounds. Two cases that showed different results in the application of this test are Alderslade v Hendon Laundry Ltd [1945] KB 189 (see 13.3C) and White v John Warwick & Co Ltd [1953] 1 WLR 1285 (see 13.4C). The benefit of an exclusion clause may be lost if a carrier deviates from an agreed voyage or route. Further, to be valid, an exclusion clause will also need to comply with the ‘four corners rule’, meaning that the acts for which exclusion from liability is sought must not be outside the [page 253] scope of the contract. The acts will be outside its scope if the acts are not authorised by the contract or contemplated by the parties. This is illustrated in Council of the City of Sydney v West (1965) 114 CLR 481 (see 13.5C).

GENERAL PRINCIPLES OF CONSTRUCTION OF EXCLUSION CLAUSES 13.2C Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500

Court: High Court of Australia Facts: By written contract, in June 1981 Delco instructed Darlington, a commodity futures broker, to enter into certain dealings on its behalf with a view to tax savings. Two clauses in the agreement dealt with the liability of Darlington as Delco’s agent. First, clause 6 purported to exclude Darlington’s liability ‘for any loss … arising from trading by [Darlington] on behalf of [Delco] whether pursuant to this agreement or not’. Second, clause 7(c) provided that ‘any liability on [Darlington’s] part … for damages for or in respect of any claim arising out of or in connection with the relationship established by this agreement or any conduct under it or any orders or instructions given … shall not in any event … exceed one hundred dollars’. Without Delco’s authority, Darlington acted on its behalf in day trading of certain coffee and silver futures. As a result of this unauthorised trading, Delco suffered monetary losses of almost $280,000. When Delco sued to recover, Darlington relied on the exclusion and limitation clauses in the contract. Issue: The issue before the High Court was whether the two clauses in Darlington’s agency agreement could serve, under the rules of construction, to limit its liability for the unauthorised losses suffered by Delco. Decision: In a unanimous decision the High Court (Mason, Wilson, Brennan, Deane, and Dawson JJ) ruled that clause 6 could not be relied on, since it could only be seen to refer to authorised trading by Darlington on Delco’s behalf. However, clause 7(c) was effective in limiting Darlington’s liability to $100, even though its actions were in breach of authority, since Delco’s claim arose in connection with the relationship of broker and client as envisaged under the contract. Extract: The extracts below from the High Court’s joint judgment contain authoritative principles on the construction of exclusion clauses.

Mason, Wilson, Brennan, Deane, and Dawson JJ

The question … is whether cl 6 protects [Darlington] from the consequences of what otherwise would be breaches of contract. [Counsel for Darlington] relies on statements in recent decisions of the House of Lords to support the approach that exclusion clauses should be simply construed in accordance with their language and that they should not be subjected to a strained construction in order to reduce the ambit of their operation. These statements [page 254] have been made in a series of cases beginning with Photo Production Ltd v Securicor Ltd1 in which the House of Lords rejected the doctrine of fundamental breach previously adopted in Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale.2 In place of that doctrine their Lordships have stated that, although an ambiguous exclusion clause will be construed contra proferentem, such a clause is to be given its natural construction. So, in Photo Production, a case decided on a contract entered into before the Unfair Contract Terms Act 1977 (UK) came into operation, Lord Diplock, observing that the court was not entitled to reject the exclusion clause ‘however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only’, said: In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations.3 This approach to the construction of exclusion clauses was subsequently reiterated in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd4 where a distinction was drawn between exclusion and limitation clauses. Lord Fraser of Tullybelton, with whom Lord Elwyn-Jones, Lord Salmon and

Lord Lowry concurred, observed that the principles applicable to exclusion clauses do not apply ‘in their full rigour’ to conditions which merely limit liability, though such conditions will be read contra proferentem.5 This distinction in the treatment of the two types of clause was subsequently endorsed in George Mitchell Ltd v Finney Lock Seeds Ltd.6 There the House of Lords concluded that the conditions of a contract for the sale of late cabbage seed limited the liability of the seller to a refund of the price paid or replacement of the seeds and that the ambit of the conditions could not be confined to breaches of contract arising without negligence on the part of the seller. The condition, read as a whole, unambiguously limited the seller’s liability to replacement of the seeds or refund of the price. Their Lordships declined to read an ambiguity into it by the process of strained construction deprecated by Lord Diplock in Photo Production7 and subsequently by Lord Wilberforce in Ailsa Craig.8 … Although these three decisions contain statements giving empha--sis to the natural meaning of the words of exclusion and limitation clauses read as a whole, we do not understand the statements to deny the legitimacy, indeed the necessity, of construing the language of such a clause in the context of the entire contract of which it forms part. The formulation by the House of Lords of a new approach to the construction of exclusion and [page 255] limitation clauses in place of the earlier approach based on the doctrine of fundamental breach explains why the emphasis in these statements is upon the language of the particular clauses rather than upon the context in which they appear. Be this as it may, this court has in past decisions authoritatively stated the approach to be adopted in Australia to the construction of exclusion and limitation clauses, without relying on the doctrine of fundamental breach. In [The Council for the City of Sydney] v West,9 the plaintiff, who had parked his car in the defendant’s parking station, received a parking ticket, containing the following condition: ‘The Council does not accept any responsibility for the loss or damage to any vehicle … however such loss, damage … may arise or be caused’. The ticket also contained a statement

which required that the ticket be presented for time-stamping and payment before delivery was taken of the vehicle. The plaintiff’s car was taken from the parking station by an unauthorised person who surrendered to the attendant a duplicate parking ticket relating to another car which he had obtained by falsely representing that he had lost his ticket. It was the attendant’s duty not to allow cars to proceed out of the station otherwise than upon the surrender by the driver of the appropriate ticket. The court held that the defendant was not excused from liability for the loss of the plaintiff’s vehicle. … [Barwick CJ and Taylor J] … made it clear that they reached this result by a process of construction of the contract and not by applying the doctrine of fundamental breach. Their Honours continued: But we would deny the application of such a clause in those circumstances simply upon the interpretation of the clause itself. Such a clause contemplates that loss or damage may occur by reason of negligence on the part of the warehouseman or his servants in carrying out the obligations created by the contract. But in our view it has no application to negligence in relation to acts done with respect to a bailor’s goods which are neither authorised nor permitted by the contract. … Negligence in these circumstances would be right outside the purview of the clause.10 … [T]he interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the 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, and, where appropriate, construing the clause contra proferentem in case of ambiguity. … [T]he same principle applies to the construction of limitation clauses. As King CJ noted in his judgment in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and

limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises. [page 256] Turning now to cl 6 of the contract … the question is whether the relevant losses arose ‘in any way out of any trading activity undertaken on behalf of [Delco] whether pursuant to this Agreement or not’. Read in context these words plainly refer to trading activity undertaken by [Darlington] for [Delco] with [Delco’s] authority, whether pursuant to the Agreement or not. It can scarcely be supposed that the parties intended to exclude liability on the part of [Darlington] for losses arising from trading activity in which it presumed to engage on behalf of [Delco] when [Darlington] had no authority so to do. The final question is whether [Darlington] is protected by cl 7(c) of the contract. This provision limits [its] liability … to $100 in relation to claims of three kinds: (1) claims arising out of or in connection with the relationship established by the agreement; (2) claims arising out of or in connection with any conduct under the agreement; and (3) claims arising out of or in connection with any orders or instructions given by the client to the broker. The Full Court of the Supreme Court considered that cl 7(c) by its terms had no application to claims arising out of conduct which is outside the scope of the agreement and the relationship between the parties established by it. This, in our opinion, is to place a more restrictive interpretation on the clause than its language will naturally bear. In particular, it is expressed to comprehend claims arising out of or in connection with the relationship established by the agreement. A claim in respect of an unauthorised transaction may none the less have a connection, indeed a substantial connection, with the relationship of broker and client established by the agreement. We are unable to discern any basis on which cl 7(c) can be construed so as not to apply to such a claim. The present case is one in which [Delco’s] claim arises in connection with the relationship of broker and client established by the contract between the parties, notwithstanding the finding that the relevant transactions were not authorised.

In the result cl 7(c) operates to limit [Darlington’s] liability to $100 in respect of each of the unauthorised coffee and silver contracts. We would allow the appeal.

Comments 13.2.1 See Radan, Gooley, and Vickovich at 13.4–13.14.

EXCLUSION CLAUSES AND LIABILITY IN NEGLIGENCE 13.3C

Alderslade v Hendon Laundry Ltd [1945] KB 189

Court: Court of Appeal in England Facts: Alderslade left 10 large Irish linen handkerchiefs with Hendon for laundering. One of the conditions on which Hendon accepted items for laundering was expressed as follows: ‘The maximum amount allowed for lost or damaged articles is 20 times the charge made for laundering.’ The handkerchiefs were lost, apparently through the negligence [page 257] of Hendon’s employees. Hendon agreed to pay the sum referred to in the condition, amounting to about 11 and a half shillings, but Alderslade sued for £5, being their alleged replacement cost. A county court judge found in Alderslade’s favour on the ground that the limitation clause was not sufficiently clear to exclude liability for negligence. Hendon appealed to the Court of Appeal. Issue: The issue before the Court of Appeal was whether the words of Hendon’s condition could be construed to exclude any liability for negligence.

Decision: The Court of Appeal (Lord Greene MR, MacKinnon LJ, and Uthwatt J) relied on authoritative decisions to construe the condition as valid and unanimously allowed Hendon’s appeal. The basis for the Court of Appeal’s reasoning was that, where on the facts the only ground for liability could be tortious, such as in negligence, the clause must be construed to cover negligence; but where the defendant could also be liable on other heads of damage, such as contractual breach, the clause should be construed as extending to those issues only unless there is also express reference to exclusion of liability for negligence. Extract: The extracts from Greene MR’s judgment contain a useful summary of the rules relating to exclusion clauses as they relate to negligence.

Lord Greene MR It was argued before us for [Hendon Laundry] that the clause did apply and was effective to limit liability for lost articles; and reliance was placed on a well-known line of authority dealing with clauses of this description. The effect of those authorities can I think be stated as follows: where the head of damage in respect of which limitation of liability is sought to be imposed by such a clause is one which rests on negligence and nothing else, the clause 0must be construed as extending to that head of damage, because if it were not so construed it would lack subject-matter. Where, on the other hand, the head of damage may be based on some ground other than that of negligence, the general principle is that the clause must be confined to loss occurring through that other cause to the exclusion of loss arising through negligence. The reason for that is that if a contracting party wishes in such a case to limit his liability in respect of negligence, he must do so in clear terms, and in the absence of such clear terms the clause is to be construed as relating to a different kind of liability and not to liability based on negligence. A common illustration of the principle is to be found in the case of common carriers. A common carrier is, to use a common expression though it may not be quite accurate, an insurer, and his liability in respect of articles entrusted to him is not necessarily based on negligence at all. Accordingly, if a common carrier

wishes to limit his liability for lost articles and does not make it quite clear that he is desiring to limit it in respect of his liability for negligence, then the clause will be construed as only extending to his liability on grounds other than negligence. But if, on the other hand, the carrier, not being a common carrier and being only under an obligation to take reasonable care, makes use of that clause, then unless it is construed so as to cover the case of negligence there would be no content for it at all. That, broadly speaking, is the principle which falls to be applied in this case. [page 258] I do not propose to go through the various authorities to which we have been referred, but I may mention: Rutter v Palmer;11 Turner v The Civil Service Supply Association;12 Fagan v Green & Edwards Ltd.13 … It must be remembered that a limitation clause of this kind only applies where the damage, in respect of which the limitation clause is operative, takes place within the four corners of the contract. A contracting party who goes outside his contract cannot rely upon the clause if the loss occurs during operations outside the contract as distinct from operations which the contract contemplates. But there is no room for the application of that principle in the present case because there is no material for finding that the loss of these handkerchiefs was due to some act by [Hendon Laundry] outside what it had contracted to do. It was argued by counsel on behalf of [Alderslade] that the clause must be construed in the present case so as to exclude loss by negligence, and the learned county court judge so held. It was said that the loss of a customer’s property might take place for one of two reasons, namely, negligence and mere breach of contract, and that in the absence of clear words referring to negligence, loss through negligence cannot be taken to be covered by the clause. In my opinion that argument fails. It is necessary to analyse the legal relationship between the customer and [Hendon Laundry]. What I may call the hard core of the contract, the real thing to which the contract is directed, is the obligation of [Hendon Laundry] to launder. That is the primary obligation. It is the contractual obligation which must be performed according to its terms, and no question of taking

due care enters into it. [Hendon Laundry] undertakes, not to exercise due care in laundering the customer’s goods, but to launder them, and if it fails to launder them it is no use saying, ‘We did our best, we exercised due care and took reasonable precautions, and we are very sorry if as a result the linen is not properly laundered’. That is the essence of the contract, and in addition there are certain ancillary obligations into which [Hendon Laundry] enters if it accepts goods from a customer to be laundered. The first relates to the safe custody of the goods while they are in the possession of the company. The customer’s goods may have to wait for a time in the laundry premises to be washed, and while they are so waiting there is an obligation to take care of them, but it is in my opinion not the obligation of an insurer but the obligation to take reasonable care for the protection of the goods. If while they are waiting to be washed in the laundry a thief, through no fault of [Hendon Laundry], steals them, the laundry company is not liable. The only way in which the company could be made liable for the loss of articles which are awaiting their turn to be washed would, I think, quite clearly be if it could be shown that [it] had been guilty of negligence in performing their duty to take care of the goods. That is one ancillary obligation which is inherent in a contract of this kind. Another relates to the delivery of the goods. The laundry company in most cases, and indeed in this case, makes a practice of delivering the goods to the customer, and in the ordinary way the customer expects to receive that service. But what is the precise obligation of the laundry in respect of the return of the goods after the laundering has been com--pleted? In my opinion it [page 259] stands on the same footing as the other ancillary obligation that I have mentioned, namely, the obligation to take reasonable care in looking after and safeguarding the goods. It cannot, I think, be suggested that the obligation of the laundry company in the matter of returning the goods after they have been laundered is the obligation of an insurer. To say that they have undertaken by contract an absolute obligation to see that they are returned seems to me to go against common sense. Supposing the laundry is returning the goods by van to its customer and while the van is on its way a negligent driver of a lorry drives into it and overturns it with the result

that it is set on fire and the goods destroyed. No action would lie by the customer for damages for the loss of those goods any more than it would lie against any ordinary transport undertaking which was not a common carrier. To hold otherwise would mean that in respect of that clearly ancillary service the laundry company were undertaking an absolute obligation that the goods would, whatever happened, be returned to the customer. It seems to me therefore that the only obligation on the company in the matter of returning the goods is an obligation to take reasonable care. In the present case all that we know about the goods is that they are lost. There seems to me to be no case of lost goods in respect of which it would be necessary to limit liability, unless it be a case where the goods are lost by negligence. Goods sent to the laundry will not be lost in the act of washing them. On the other hand, they may be lost while they are in the custody of the laundry company before washing or after washing has been completed. They may be lost in the process of returning them to the customer after they have been washed, but in each of those two cases, if my view is right, the obligation of the laundry company is an obligation to take reasonable care and nothing else. Therefore, the claim of a customer that the company is liable to him in respect of articles that have been lost must, I think, depend upon the issue of due care on the part of the company. If that be right, to construe this clause, so far as it relates to loss, in such a way as to exclude loss occasioned by lack of proper care would be to leave the clause so far as loss is concerned — I say nothing about damage — without any content at all. The result, in my opinion, is that the clause must be construed as applying to the case of loss through negligence.

Comments 13.3.1 See Radan, Gooley, and Vickovich at 13.19–13.21. 13.3.2 Lord Greene’s comments at page 192 of the judgment in this case formed the basis for the third rule in relation to exclusion clauses in the context of a defendant’s liability in the tort of negligence in Canada Steamship Lines Ltd v The King [1952] AC 192 at 208, where the Privy Council said the following: (i) an express exemption of liability for negligence will

effectively exclude liability on the part of the defendant; (ii) where there is no express reference to negligence, the court needs to determine if the words used are wide enough to exclude negligence, with any doubts on this to be resolved by applying the contra proferentum principle; (iii) if the words used are [page 260] wide enough to cover negligence but also encompass other grounds of liability other than negligence, the clause will be read as applying only to the other grounds of liability and will not operate to exclude the claim for negligence, provided that the other ground is not ‘so fanciful or remote that the proferens cannot be supposed to have desired protection against it’. 13.3.3 For a discussion of the status of these rules in the light of the High Court’s decision in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, see Radan, Gooley, and Vickovich at 13.24–13.33. 13.4C

White v John Warwick & Co Ltd [1953] 1 WLR 1285

Court: Court of Appeal in England Facts: White hired a tradesman’s cycle from Warwick for the purpose of conducting a newspaper run as part of his newsagency business. The written agreement between the parties provided for a replacement cycle at times of repair and maintenance, and included clause 11 which stated: ‘Nothing in this agreement shall render the owners liable for any personal injuries to the riders of the machines hired nor for any third-party claims, nor loss of any goods, belonging to the hirer, in the machines.’ A replacement cycle given to White had a loose seat that slipped forward when he was riding it, causing

him to fall to the ground and suffer a serious knee injury. Examination of the seat revealed that the nuts underneath were too rusted to be tightened. White sued for breach of contract, alleging that Warwick had supplied a defective cycle, as well as for breach of duty of care, claiming Warwick had been negligent in maintaining the cycle in good repair. Issue: The issue before the Court of Appeal was whether the exclusion clause validly excluded Warwick’s liability for negligence. Decision: The Court of Appeal (Singleton, Denning, and Morris LJJ) unanimously allowed White’s appeal on the ground that there were two causes of action on the facts. First, there was breach of an implied contractual term that the cycle would be reasonably safe for the intended purpose, but there was also a breach of duty of care in tort. Accordingly, the exclusion clause, without express reference to negligence, served only to protect Warwick from liability for breach of the contractual term. Since liability for negligence remained unprotected, White could succeed. Extract: The extracts from the judgments of Singleton LJ and Denning LJ illustrate the position that where there is concurrent liability in both contract and tort, an exclusion clause that does not specifically refer to negligence will fail to protect from liability in negligence, although it may be effective against contractual breach.

[page 261]

Singleton LJ [White submitted] that, though clause 11 relieved [Warwick] in respect of a claim for breach of contract arising from the agreement, it did not absolve them if there is a cause of action established on the ground of negligence. Counsel [for Warwick] submitted that, if there was negligence, it was negligence in connection with the performance of the contract; that the

machine which was supplied was supplied in performance of the obligation arising under the contract, and that that which was done was under the agreement; that, consequently, the cause of action, if there was one, arose out of the agreement, and that, whether there was negligence or not, clause 11 prevented [White] from succeeding in an action of this nature. That gives rise to a question of some nicety. … I am inclined to think for the present purpose most help is given by reference to the speech of Lord Macmillan in Donoghue v Stevenson. The passage is as follows: On the one hand, there is the well established principle that no one other than a party to a contract can complain of a breach of that contract. On the other hand, there is the equally well established doctrine that negligence apart from contract gives a right of action to the party injured by that negligence — and here I use the term negligence, of course, in its technical legal sense, implying a duty owed and neglected. The fact that there is a contractual relationship between the parties which may give rise to an action for breach of contract, does not exclude the co-existence of a right of action founded on negligence as between the same parties, independently of the contract, though arising out of the relationship in fact brought about by the contract. Of this the best illustration is the right of the injured railway passenger to sue the railway company either for breach of the contract of safe carriage or for negligence in carrying him. And there is no reason why the same set of facts should not give one person a right of action in contract and another person a right of action in tort.14 … It is clear from those words … that there may be, arising from the same set of facts, an action for damages for breach of contract and an action for a tort. It is said that that position arises in this case, and that though an action for damages for breach of contract may be said to be barred by clause 11 of the contract, it cannot be said that the words of that clause operate to shut out [White] from what he would normally have, namely, an action for damages for the tort of negligence. … [Counsel for White] also referred the court to Alderslade v Hendon

Laundry Ltd and in particular, to the words of Lord Greene MR, where he summarized the effect of the authorities in this way: The effect of those authorities can I think be stated as follows: where the head of damage in respect of which limitation of liability is sought to be imposed by such a clause is one which rests on negligence and nothing else, the clause must be construed as extending [page 262] to that head of damage, because if it were not so construed it would lack subject-matter. Where, on the other hand, the head of damage may be based on some other ground than that of negligence, the general principle is that the clause must be confined to loss occurring through that other cause, to the exclusion of loss arising through negligence.15 In the circumstances of the present case the primary object of the clause, one would think, is to relieve [Warwick] from liability for breach of contract or for breach of warranty. Unless, then, there be clear words which would also exempt from liability for negligence, the clause ought not to be construed as giving absolution to [Warwick] if negligence is proved against them. The result is that clause 11 ought not, I think, to be read as absolving [Warwick] from liability for negligence; that is, if it is proved that the injury which [White] sustained was due to lack of that care which one in [Warwick’s] position ought to take when supplying a tricycle for the use of [White]. If that is proved, then [Warwick] do not escape liability by reason of clause 11.

Denning LJ In this type of case, two principles are well settled. The first is that, if a person desires to exempt himself from a liability which the common law imposes on him, he can only do so by a contract freely and deliberately entered into by the injured party in words that are clear beyond the possibility of misunderstanding. The second is: if there are two possible

heads of liability on the part of [the] defendant, one for negligence, and the other a strict liability, an exemption clause will be construed, so far as possible, as exempting the defendant only from his strict liability and not as relieving him from his liability for negligence. In the present case, there are two possible heads of liability on [Warwick], one for negligence, the other for breach of contract. The liability for breach of contract is more strict than the liability for negligence. [Warwick] may be liable in contract for supplying a defective machine, even though they were not negligent. In these circumstances, the exemption clause must, I think, be construed as exempting [Warwick] only from their liability in contract, and not from their liability for negligence. [Counsel for Warwick] admitted that, if the negligence was a completely independent tort, the exemption clause would not avail; but he said that the negligence here alleged was a breach of contract, not an independent tort. The facts which gave rise to the tort were, he said, the same as those which gave rise to the breach of contract, and [White] should not be allowed to recover merely by framing his action in tort instead of contract. That was the view which appealed to [the trial judge], but I cannot agree with it. In my opinion, the claim for negligence in this case is founded in tort and not on contract. That can be seen by considering what would be the position if, instead of [White] himself, it was his servant who had been riding the cycle and had been injured. If the servant could show that [Warwick] had negligently sent out a defective machine for immediate use, he would have had a cause of action in negligence on the principle stated in Donoghue v Stevenson, and, as against the servant, the exemption clause would be no defence. That shows that [Warwick] [page 263] owed a duty of care to the servant. A fortiori they owed a like duty to [White] himself. In either case, a breach of that duty is a tort, which can be established without relying on any contract at all. It is true that [White] … could also rely on a contract, if he had wished, but he is not bound to do so,

and if he can avoid the exemption clause by framing his claim in tort he is, in my judgment, entitled to do so. … [Counsel for Warwick] … relied on the judgment of Scrutton LJ in Hall v Brooklands Auto-Racing Club, where he said: When the defendant has protection under a contract, it is not permissible to disregard the contract and allege a wider liability in tort.16 This passage only refers to cases where there is a contract by the plaintiff which plainly gives an exemption to the defendant from liability for the tort. For instance, if a transport company expressly stipulates with the plaintiff for exemption from liability for damage, howsoever caused, the plaintiff cannot overcome that exemption by suing in negligence instead of contract. But the contract in such a case must be by and with the plaintiff. In a case such as Donoghue v Stevenson a manufacturer cannot exempt himself from liability to the consumer simply by putting an exemption clause in his contract with the wholesaler, even though the clause is brought to the consumer’s notice and says that the consumer is to have no claim for negligence. It is not a clause for the benefit of a third party, but to his prejudice and is not binding on him. [This does not] affect the present case, which turns on the construction of the exemption clause. In my judgment, it exempts [Warwick] from liability in contract, but not from liability in tort. If [White] can make out his cause of action in negligence, he is, in my opinion, entitled to do so, although the same facts also give a cause of action in contract from which [Warwick] are exempt.

[page 264]

Comment 13.4.1 See Radan, Gooley, and Vickovich at 13.22–13.23.

THE FOUR CORNERS RULE 13.5C

Council of the City of Sydney v West (1965) 114 CLR 481

Court: High Court of Australia Facts: West parked his car in the Domain Parking Station in Sydney, which was owned and operated by the Sydney City Council. The parking ticket contained certain conditions, one of which stated: ‘The Council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or for any injury to any person however such loss, damage or injury may arise or be caused.’ It also included an ‘important’ instruction for patrons to present the ticket for time stamping and payment before they picked up their vehicles. A man entered the parking station and claimed to have lost his ticket and, after giving a false name and address, convinced a parking station employee to issue him with a duplicate ticket. West’s car subsequently disappeared, only to be found later in a damaged state. West brought an action in detinue against the Council, and also sued the Council for damages, alleging a breach of the contract of bailment. Issue: The issue before the High Court was whether the construction of the exclusion clause meant that the Council was protected from liability to West. Decision: A majority of the High Court (Barwick CJ, Taylor and Windeyer JJ; Kitto and Menzies JJ dissenting) held that, even if the exclusion clause could be construed to be a term of the contract, it was unenforceable. Extract: The extracts from the judgment of Barwick CJ and Taylor J highlight their position that the clause could not extend to cover negligent acts that were unauthorised or not permitted under the contract. Windeyer J’s judgment emphasised that the clause could not protect the Council, since it had breached its contract with West.

Barwick CJ and Taylor J After some discussion of a number of cases in which the effect of a breach of ‘a fundamental term’ of a contract containing an exemption clause of the type in question here was considered, the Full Court held that the evidence showed that there had been such a breach of the contract of bailment and, that being so, [the Council] was not entitled to rely upon the exemption clause. They expressed this view after quoting the following passage from the judgment of Denning LJ … in J Spurling Ltd v Bradshaw: [page 265] The essence of the contract by a warehouseman is that he will store the goods in the contractual place and deliver them on demand to the bailor or his order. If he stores them in a different place, or if he consumes or destroys them instead of storing them, or if he sells them, or delivers them without excuse to somebody else, he is guilty of a breach which goes to the root of the contract and he cannot rely on the exempting clause. But if he should happen to damage them by some momentary piece of inadvertence, then he is able to rely on the exempting clause: because negligence by itself, without more, is not a breach which goes to the root of the contract … any more than non-payment by itself is such a breach.17 They noted that his Lordship cited the case of a warehouseman who delivers the bailor’s goods without excuse to somebody else and they agreed with this ‘as a simple illustration of the general rule’ and added that: … it follows almost as of course that what is said to have happened in this case similarly amounted to a fundamental breach with the result that the defendant cannot rely on the exclusion clause.18 … We find difficulties in the way of solving the problem in the manner in which it was solved by the Full Court. First of all we have some difficulty, as Devlin J (as he then was) had in Smeaton Hanscomb & Co Ltd v Sassoon I. Setty, Son & Co,19 in understanding precisely what is meant by the expression ‘fundamental term’ and we find further difficulty in the

illustration given by Denning LJ when he denied the application of an exemption clause to a case where a warehouseman misdelivers goods left in his custody without excuse. There is no doubt, of course, that in the case where a contract of bailment contains an exempting clause much as we have to consider the protection afforded by the clause will be lost if the goods the subject of the bailment are stored in a place or in a manner other than that authorized by the contract or if the bailee consumes or destroys them instead of storing them or if he sells them. But we would deny the application of such a clause in those circumstances simply upon the interpretation of the clause itself. Such a clause contemplates that loss or damage may occur by reason of negligence on the part of the warehouseman or his servants in carrying out the obligations created by the contract. But in our view it has no application to negligence in relation to acts done with respect to a bailor’s goods which are neither authorized nor permitted by the contract. For instance, if, in the present case, one of the attendants at the parking station had been allowed by the management to use [West’s] car for his own purposes and, in the course of driving it, had caused damage to it by his negligent driving, the clause would afford no protection. Negligence in these circumstances would be right outside the purview of the clause. The same result would follow if an attendant had proceeded, without authority, to make adjustments or repairs to [West’s] vehicle while it was in the parking station and had carried out such work negligently and thereby caused damage. To our minds the clause clearly appears as one which contemplates that, in the performance of the Council’s [page 266] obligations under the contract of bailment, some loss or damage may be caused by reason of its servants’ negligence but it does not contemplate or provide an excuse for negligence on the part of the Council’s servants in doing something which it is neither authorized nor permitted to do by the terms of the contract. … It is, therefore, necessary to consider the question whether the loss, in the circumstances deposed to, was a loss resulting merely from the failure on

the part of [the Council] to use reasonable care to keep the car safely whilst it was in its possession as a bailee or whether by some positive act [the Council] can be said to have delivered possession of the car to [the thief]. If it did then, in our view, this constituted an unauthorized act performed by [the Council] in relation to [West’s] car and he is entitled to recover. … Possession of any car leaving the station, it seems to us, was, therefore, retained by [the Council] until presentation and surrender of such a ticket by the driver of the car. To our minds, therefore, the act of the attendant in permitting [the thief] to proceed after handing over the duplicate ticket which he had obtained constituted an unauthorized delivery of possession by him to [the thief] and not a mere act of negligence in relation to some act authorized by the contract of bailment. … The fact that the attendant at the exit through which the car was driven was negligent is of no consequence in the case; the act of delivery was one which was neither authorized nor permitted by the contract and in our view the appellant was not entitled to be exonerated by the exempting clause. This conclusion is, we think, in accordance with the unanimous view of the members of this Court in Tozer Kemsley & Millbourn (A/asia) Pty Ltd v Collier’s Interstate Transport Service Ltd.20 In that case the facts showed that a bailee had delivered goods of the bailor to a third party who had no authority to receive them and it was held that the bailor was not entitled to be exonerated by a clause which provided that the bailor would not, in respect of the goods bailed, be responsible for any loss or damage arising from a great many specified causes or for ‘any other loss or damage (whether caused by or arising from any negligence of the proprietors or of their servants or agents or otherwise) which can be covered by insurance by the owner or depositor of the goods’. All members of the Court were of the opinion that in the absence of express words or necessary intendment it would be going too far to construe the clause as excusing loss by misdelivery or delivery to an unauthorized person.

Windeyer J I go … to the words on the card and I read them with two things particularly in mind. One is that the common-law obligation of a bailee is to keep secure the thing bailed; and, the proper charges having been paid, to

deliver it to the bailor on demand. The other is that these obligations are not absolute: all that is required of the bailee is that he exercise due care to perform them. In short, apart from whatever is written on the card, [the Council] would be liable for damage to or loss of the car if, but only if, that damage or loss was caused by the fault (deliberate or negligent) of its servants. Now what does the card say? It must be read as a whole so far as it records the terms of the bailment. It seems to me that it says two things. The first [page 267] puts a higher duty on [the Council] in respect of delivery or misdelivery than the law would otherwise impose. The second gives an immunity from liability that in other respects might arise from negligence or misconduct by [the Council’s] servants in relation to the custody of the car. The contract between the parties thus makes the obligation of [the Council] more strict in respect of one matter, while relieving it of liability in respect of others. As to the first, the card states ‘This card must be presented to Attendant to obtain release of vehicle’. Later it states under a heading ‘Important — This ticket must be presented for time stamping and payment before taking delivery of the vehicle’. These statements seem to me to mean that a term on which the vehicle was accepted was that it would not be released by [the Council] from its custody except on the presentation of the card. … [The Council], however, relies upon the words … ‘The Council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or for any injury to any person however such loss, damage or injury may arise or be caused’. … The clause is in very wide terms … [and] would, I think, cover any loss by explosion or fire occurring on the premises and probably too any loss by theft which did not involve an actual release or delivery of the vehicle to a person not presenting the card. It would also, I do not doubt, cover damage to the vehicle while on the premises caused by the negligence of [the Council’s] servants, or by the negligence or deliberate intent of some other person for example another user of the service station. But I doubt whether it should be read as extending to harm done deliberately by a

servant or agent of [the Council] for which [it] would ordinarily be vicariously liable. … In this case the contract was broken because [the Council] did not do the thing it had contracted to do in the way in which it had contracted to do it.

Comment 13.5.1 See Radan, Gooley, and Vickovich at 13.37–13.40.

1.

[1980] AC 827.

2. 3.

[1967] 1 AC 361. Photo Production Ltd v Securicor Ltd [1980] AC 827 at 851.

4. 5.

[1983] 1 All ER 101. Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101 at 105.

6. 7.

[1983] 2 AC 803 at 813–14. Photo Production Ltd v Securicor Ltd [1980] AC 827 at 851.

8. 9.

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101 at 102. (1965) 114 CLR 481.

10. 11.

The Council for the City of Sydney v West (1965) 114 CLR 481 at 488. [1922] 2 KB 87.

12. 13.

[1926] 1 KB 50. [1926] 1 KB 102.

14. 15.

Donoghue v Stevenson [1932] AC 562 at 609–10. Alderslade v Hendon Laundry Ltd [1945] KB 189 at 192.

16. 17.

Hall v Brooklands Auto-Racing Club [1933] 1 KB 205 at 213. J Spurling Ltd v Bradshaw (1956) 1 WLR 461 at 465.

18. 19.

[West v Sydney City Council] (1964) 82 WN (Pt 1) (NSW) 139 at 487. (1953) 1 WLR 1468.

20.

(1956) 94 CLR 384.

[page 269]

Part IV: Vitiating Factors

[page 271]

14 MISREPRESENTATION

INTRODUCTION 14.1 This chapter deals with misrepresentations made during the course of negotiations leading to a contract. For a pre-contractual statement to constitute a misrepresentation at common law, it must be a false statement of fact that induces the representee to enter into the contract. The effect of a misrepresentation may give rise to a right of rescission on the part of the representee. However, notwithstanding that a party may potentially have a right to rescind a contract because of a misrepresentation, it is nevertheless recognised that the right may have been lost or is not available in the particular circumstances. It should be noted that false representations may also lead to statutory remedies because, for example, they are misleading or deceptive representations as is understood under the Australian Consumer Law, or because to otherwise allow the representor to rely upon the false representations is unconscionable or unfair. Such situations may give rise to statutory causes of action and to statutory remedies. These matters are analysed in Chapter 15. As noted above, in the context of misrepresentations at common law, one central issue is whether a representor’s statement is one of fact. In Balfour & Clark v Hollandia Ravensthorpe NL (1978) 18 SASR 240 (see 14.2C) a central issue was whether certain statements made by a real estate agent about a proposed loan from a building society was a representation of fact and, if so, whether it was false. Likewise, in Edgington v Fitzmaurice (1885) 29 Ch D 459

(see 14.3C) a question arose as to whether there had been a false statement of fact and whether that induced a person to invest in particular debenture bonds. In Smith v Land and House Property Corporation (1885) 28 Ch D 7 (see 14.4C) it was also held that a particular opinion that had been expressed by an auctioneer was a statement of fact that was sufficient to amount to a misrepresentation. Another element required to be satisfied in order for there to be actionable misrepresentation at common law is whether the representation made actually induced the person to enter into the contract. If circumstances exist that the person to whom the representation was made knew of facts proving the representation to be untrue or expressly or impliedly demonstrated that they did not rely upon the false representation, then it could be argued that there was no inducement by the representation in entering the contract. This was discussed in Redgrave v Hurd (1881) 20 Ch D 1 (see 14.5C). In relation to misrepresentation, materiality of the statement of fact also needs to be determined. This was illustrated in Nicholas v Thompson [1924] VLR 554 (see 14.6C). [page 272]

STATEMENT OF FACT 14.2C Balfour & Clark v Hollandia Ravensthorpe NL (1978) 18 SASR

240 Court: Full Court of the Supreme Court of South Australia Facts: Hollandia Ravensthorpe NL was one of a group of three related companies operating in the property market. It constructed residential dwellings and the other two companies sold and financed them. Balfour and Clark were a young couple interested in buying their first home. They were told by a real estate agent working for one of the companies that they could buy a house with the payment of a minimal deposit and a two-year loan that could be arranged through the group. The agent also told them that at the end of the

two-year period they could refinance by borrowing from the Hindmarsh Building Society a sum equal to 90 per cent of the value of the property, provided they opened an account with them and saved 10 per cent of the purchase price of the property during the initial two-year period. They contracted to purchase a house in January 1977 and settled a month later with a mortgage to one of the companies for $36,155 repayable after two years. Four months later Balfour and Clark’s solicitor sent a letter alleging that the contract had been entered into upon the making of fraudulent misrepresentations by the agent. They claimed that when the agent advised them about the refinance arrangement, he knew they would not have been able to afford the Hindmarsh Building Society loan on their combined income. They sought to have the purchase set aside on that basis. Issue: The issue before the Full Court was whether the statement made by the agent about the future loan from the building society was an assurance as to the future or a statement about a present fact, and therefore a representation capable of being proved false. Decision: The Full Court (Bray CJ, Hogarth and Zelling JJ) unanimously held in favour of Balfour and Clark on the ground that the agent’s statement about the future loan was a statement of fact because it misrepresented the building society’s present lending policy. Extract: The extracts below from the judgment of Bray CJ highlight that, in certain circumstances, a statement about the future may constitute a statement about presently existing facts.

Bray CJ There was evidence before the learned Judge which clearly justified the finding that [the agent] represented to [Balfour and Clark] that in two years’ time they would be able to borrow from the Hindmarsh Building Society a sum equal to 90 per cent of the value of the property, if it was only secured by a first mortgage, on two conditions, and two conditions alone: first that they promptly opened an account with the Society and, second,

that they had saved 10 per cent of the purchase price of the property within the two years. [page 273] The truth as found by her Honour was that the Hindmarsh Building Society would lend, not up to 90 per cent, but up to 95 per cent of the value of the property, but not only on the conditions referred to in the representation. The requirements were that the prospective borrower should have saved with the society for two years and have had 10 per cent of the amount he wished to borrow in his account with the society for three months, but the maximum loan would be either 95 per cent of the value, or 2.3 times the gross annual income, or 119.6 times the gross weekly income of the borrower, whichever was the less. The representation found contains no reference to the inability of [Balfour and Clark] in any event to borrow from the Hindmarsh Building Society anything more than those multiples of their gross annual or weekly incomes as the case may be. In fact neither of those multiples could have been reached on their existing incomes at the date of the contract and it was unlikely that they could have been reached during the subsequent two years. Thus an important, nay, from the point of view of [Balfour and Clark], a vital, element of the lending terms of the Hindmarsh Building Society was never disclosed to them. In my view in the circumstances of this case the representation was clearly false by reason of what was omitted from it. Fraud may consist in suppressio veri as well as in suggestio falsi.1 However, that in itself is not an answer to the principal ground of appeal, that the representation was not a representation of present fact but only a promise as to or a forecast of the future intention of someone else. I think that contention is completely untenable. It is true that the representation found by the learned Judge is expressed in the future conditional tense: but grammar is not decisive of this question. There are many cases where a statement expressed in the future tense is really a representation of an existing fact. If I say that a department store is selling certain goods at 15 per cent discount, that is a statement in the present tense and a representation of an existing fact; if I say, ‘If you go to that department

store, they will sell you the goods in question at a discount of 15 per cent’, that is a statement in the future tense, but it is none the less a representation of an existing fact. It means exactly the same as the first statement. There is no doubt that a mere promise that something will be done in the future is not a representation of an existing fact unless out of it can be spelt a representation as to the present existence of an intention, belief or state of knowledge on the part of the promisor. But nevertheless there are many cases in the books where a statement in the future tense has been held to amount to a representation of an objective existing fact.2 In Aaron’s Reefs Ltd v Twiss Lord Halsbury LC expressed himself on the point with typical forthrightness. He said: … I do not think any particular form of words is necessary to convey a false impression. Supposing a person goes to a bank where the people are foolish enough to believe his words and says ‘I want a mortgage upon my house and my house is not completed, but [page 274] in the course of next week I expect to have it fully completed’. Suppose there was not a house upon his land at all and no possibility, therefore, that it could be fully completed next week, can anyone say that that was not an affirmative representation that there was a house which was so near to completion that it only required another week’s work upon it to complete it? … So, here, when I look at the language in which this prospectus is couched and see that it speaks of a property which requires only the erection of machinery to be either at once or shortly in a condition to do work so as to obtain all this valuable metal from the mine, it seems to me that, although it is put in ambidextrous language, it means as plainly as can be that this is now the condition of the mine that such and such additions to it will enable it shortly to produce all those great results and that that is a representation of an actually existing fact. I should quite agree with the proposition that the Lord Chancellor of Ireland and the Master of the Rolls put forward — if you are looking

to the language as only the language of hope, expectation and confident belief that is one thing; but it does not seem to have been in the minds of the learned judges that you may use language in such a way as, although in the form of hope and expectation, it may become a representation as to existing facts; and if so, and if it is brought to your knowledge that those facts are false, it is a fraud.3 So in the present case I think there is no difficulty in construing the representation found by the learned Judge as a representation that the existing policy of the Hindmarsh Building Society was to lend the amount stated subject to two conditions and to those conditions alone. The representation so construed was a representation of an existing fact and it was false.

[page 275]

Comment 14.2.1 See Radan, Gooley, and Vickovich at 14.9–14.11. 14.3C

Edgington v Fitzmaurice (1885) 29 Ch D 459

Court: Court of Appeal in England Facts: In 1880 Fitzmaurice and other directors of the Army and Navy Provision Market issued a prospectus calling for debenture subscriptions. The document referred to the company’s recent acquisition of property and then stated that the company was raising capital in order to develop and renovate the new premises and to buy horses and vans to ensure the direct supply of cheap fish from the coast. Other information in the prospectus implied that the debenture holders would be given a charge over the property and that certain mortgages were not immediately payable by the company. Edgington invested £1500 to purchase debenture bonds

in the company. The bonds in fact created no charge over company assets and, instead, the board of directors used the money raised to pay off pressing debts. The company was eventually wound up, with Edgington receiving a dividend of only £45 as an unsecured creditor. He sued the directors in deceit, claiming he would not have subscribed for the debentures without the board’s fraudulent misrepresentation that his investment was secured by a charge. At trial, Edgington obtained judgment for £1500 less the amount received on the winding up. The directors appealed to the Court of Appeal. Issue: The issue before the Court of Appeal was whether the trial judge had erred in holding there was a misrepresentation. Fitzmaurice argued there was no false statement of facts known by the board to be false when the statement was made. Decision: The Court of Appeal (Cotton, Bowen, and Fry LJJ) unanimously dismissed the appeal, deciding the statement made by the board about its intentions was false and was made recklessly as to its truth, if not knowingly as to its falsity. Extract: The extract from the judgment of Bowen LJ explains why there was a misrepresentation in this case and contains his often quoted words: ‘[T]he state of a man’s mind is as much a fact as the state of his digestion. … A misrepresentation as to the state of a man’s mind is therefore a misstatement of fact.’

Bowen LJ This is an action for deceit, in which [Edgington] complains that he was induced to take certain debentures by the misrepresentation of [the directors], and that he sustained damage thereby. The loss which [Edgington] sustained is not disputed. In order to sustain his action he must first prove that there was a statement as to facts which was false; and, secondly, that it was false to the knowledge of [the directors], or that they made it not caring whether it was true or false. For it is immaterial whether they made the statement knowing

[page 276] it to be untrue, or recklessly without caring whether it was true or not, because to make a statement recklessly for the purpose of influencing another person is dishonest. It is also clear that it is wholly immaterial with what object the lie is told. That is laid down in Lord Blackburn’s judgment in Smith v Chadwick4 but it is material that the defendant should intend that it should be relied on by the person to whom he makes it. But, lastly, when you have proved that the statement was false, you must further show that the plaintiff has acted upon it, and has sustained damage by so doing; you must show that the statement was either the sole cause of the plaintiff’s act or materially contributed to his so acting. So the law is laid down in Clarke v Dickson5 and that is the law which we have now to apply. The alleged misrepresentations were three: First, it was said that the prospectus contained an implied allegation that the mortgage for £21,500 could not be called in at once, but was payable by instalments. I think that upon a fair construction of the prospectus it does so allege, and therefore that the prospectus must be taken to have contained an untrue statement on that point, but it does not appear to me clear that the statement was fraudulently made by [the directors]. It is therefore immaterial whether [Edgington] was induced to act as he did by that statement. Secondly, it is said that the prospectus contains an implied allegation that there was no other mortgage affecting the property except the mortgage stated therein. I think there was such an implied allegation, but I think it is not brought home to [the directors] that it was made dishonestly; accordingly, although [Edgington] may have been damnified by the weight which he gave to the allegation, he cannot rely on it in this action, for in an action of deceit the plaintiff must prove dishonesty. Therefore, if the case had rested on these two allegations alone, I think it would be too uncertain to entitle [Edgington] to succeed. But when we come to the third alleged misstatement, I feel that [Edgington’s] case is made out. I mean the statement of the object for which the money was to be raised. These were stated to be to complete the alterations and additions to the buildings, to purchase horses and vans, and

to develop the supply of fish. A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact: but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is therefore a misstatement of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of [the directors] in raising the money were not those stated in the circular. I will not go through the evidence, but, looking only to the cross-examination of [the directors], I am satisfied that the objects for which the loan was wanted were misstated by [them]. I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law. [page 277] Then the question remains — Did this misstatement contribute to induce [Edgington] to advance his money? [Counsel for the directors’] argument has not convinced me that it did not. He contended that [Edgington] admits that he would not have taken the debentures unless he had thought they would give him a charge on the property, and therefore he was induced to take them by his own mistake, and the misstatement in the circular was not material. But such misstatement was material if it was actively present to his mind when he decided to advance his money. The real question is what was the state of [Edgington’s] mind, and if his mind was disturbed by the misstatement of [the directors], and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself would make no difference. It resolves itself into a mere question of fact. … But the balance of my judgment is weighed down by the probability of the case. What is the first question which a man asks when he advances money? It is, what is it wanted for? Therefore I think that the statement is material, and that [Edgington] would be unlike the rest of his race if he was not influenced by the statement of the objects for which the loan was required. The learned judge in the court below came to

the conclusion that the misstatement did influence him, and I think he came to a right conclusion.

Comment 14.3.1 See Radan, Gooley, and Vickovich at 14.13–14.14 and 14.46. 14.4C Smith v Land and House Property Corporation (1885) 28 Ch D

7 Court: Court of Appeal in England Facts: In 1882 Smith and others, in their capacity as mortgagees exercising a power of sale, listed a hotel for sale and engaged an auctioneer to act on their behalf. The hotel was promoted as having a ‘most desirable tenant’ paying an annual rental of £400 in a lease with a term of over 27 years remaining. The Land and House Property Corporation sent its secretary to investigate the site and report to its committee. The report outlined the generally depressed state of the surrounding locality and expressed the view that purchase of the hotel could be profitable only with some redevelopment. The committee instructed the secretary to attend the auction and bid no more than £5000. At auction, the property was passed in and the secretary then secured a contract for the Corporation for a purchase price of £4700. Before the conveyance was completed, the tenant was bankrupted and the Corporation discovered he had in fact been making rental payments irregularly and was in arrears at the time of the sale. The Corporation refused to complete the purchase on the basis that a misrepresentation had been made by the vendors, claiming they would not have entered into the contract had they known the truth about the tenant. Smith commenced an action for specific performance. The Corporation counter-claimed for return of deposit, expenses, and cancellation of the contract or compensation for misdescription.

[page 278] Issues: The issues before the Court of Appeal were whether the opinion expressed by the auctioneer on Smith’s behalf was a statement of fact sufficient to amount to a misrepresentation and whether the Corporation relied on that statement to enter into the contract. Decision: The Court of Appeal (Baggallay, Bowen, and Fry LJJ) unanimously held in favour of the Corporation. It was found that a material misrepresentation had been made and that the Corporation relied on it. Extract: The extracts from Bowen LJ’s judgment show that where the facts are available to one party only, an opinion may amount to a statement of fact because the party making the statement is effectively asserting that the facts would reasonably support such an opinion.

Bowen LJ The action is by [Smith] for specific performance, and [the Corporation] allege[s] that there is in the particulars a misrepresentation which disentitles [Smith] to specific performance. To sustain this defence [the Corporation] must prove that there was a material misrepresentation, and that they entered into the contract on the faith of the representation. Was there then a misrepresentation of a specific fact? This partly depends on the question, whether on the construction of the particulars, what [was said about the tenant] is a representation of a specific fact, a question which the Court of Appeal has the same means of deciding as the Judge in the Court below. Whether [the Corporation] relied upon it is a question of fact which the Judge of the Court below had better means of deciding than we have, for he saw and heard the witnesses. In considering whether there was a misrepresentation, I will first deal with the argument that the particulars only contain a statement of opinion about the tenant. It is material to observe that it is often fallaciously assumed that

a statement of opinion cannot involve the statement of a fact. In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of a fact, about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion. Now a landlord knows the relations between himself and his tenant, other persons either do not know them at all or do not know them equally well, and if the landlord says that he considers that the relations between himself and his tenant are satisfactory, he really avers that the facts peculiarly within his knowledge are such as to render that opinion reasonable. Now are the statements here statements which involve such a representation of material facts? They are statements on a subject as to which prima facie the vendors know everything and the purchasers nothing. [Smith states] that the property is let to a most desirable tenant, what does that mean? I agree that it is not a guarantee that the tenant will go on paying his rent, but it is to my mind a guarantee of a different sort, and [page 279] amounts at least to an assertion that nothing has occurred in the relations between [Smith] and the tenant which can be considered to make the tenant an unsatisfactory one. That is an assertion of a specific fact. Was it a true assertion? Having regard to what took place between Lady Day and Midsummer, I think that it was not. On the 25th of March, a quarter’s rent became due. On the 1st of May, it was wholly unpaid and a distress was threatened. The tenant wrote to ask for time. [Smith] replied that the rent could not be allowed to remain over Whitsuntide. The tenant paid on the 6th of May £30, on the 13th of June £40, and the remaining £30 shortly before the auction. Now could it at the time of the auction be said that nothing had occurred to make [the tenant] an undesirable tenant? In my opinion a tenant who had paid his last quarter’s rent by driblets under pressure must be regarded as an undesirable tenant.

Treating this then as a misrepresentation, did it induce [the Corporation] to buy? It appears to me that it is in every case a question of fact whether a person is induced to buy by a particular representation. We may obtain valuable hints from reported cases, but none of the cases appear to me to impugn the proposition that the question is one of fact to be decided on the circumstances of each particular case. A representation in the particulars must be taken as made for the purpose of influencing the purchaser’s mind. Then did [the Corporation] rely upon it? I cannot quite agree with the remark of the late Master of the Rolls in Redgrave v Hurd6, that if a material representation calculated to induce a person to enter into a contract is made to him it is an inference of law that he was induced by the representations to enter into it, and I think that probably his Lordship hardly intended to go so far as that, though there may be strong reason for drawing such an inference as an inference of fact. But here we are not left to inference. The chairman of [the Corporation] was called and swore in the most distinct and positive way that it did influence him, and that but for the representation he would not have purchased. The Judge was at liberty to disbelieve him, but I see no reason why he was bound so to do. His evidence was not shaken on cross-examination, and the Judge believed him. He uses the very argument that the property had been examined on behalf of [the Corporation] as strengthening the statement that [it] relied on the representation, for he says the report of the secretary was so unfavourable that but for the representation as to the tenant they would not have bought. Redgrave v Hurd shows that a person who has made a misrepresentation cannot escape by saying, ‘You had means of information, and if you had been careful you would not have been misled’. It was urged that [the chairman of the Corporation] would not have relied on the representation had he not put on it a construction that it will not bear, viz, that it was a guarantee that the tenant would go on paying the rent. I do not think that he understood it so. I think he merely understood it as a representation that, so far as [Smith] knew, the tenant was likely to go on paying the rent for the rest of the term. If we had merely to deal with the evidence of [the chairman of the Corporation] on paper, I should not feel quite satisfied that we ought to treat it as satisfactory, but as the Judge who heard and saw him was satisfied, I think that we ought not to differ from his conclusion.

[page 280]

Comment 14.4.1 See Radan, Gooley, and Vickovich at 14.18.

INDUCEMENT 14.5C

Redgrave v Hurd (1881) 20 Ch D 1

Court: Court of Appeal in England Facts: Redgrave, an elderly Birmingham solicitor, placed an advertisement in a legal journal for a partner who ‘would not object to purchase advertiser’s suburban residence, suitable for a family, value £1,600’. Hurd responded and during initial negotiations Redgrave told him the practice had been making between £300 and £400 per annum over the previous three years. When Hurd asked to see evidence of the takings, he was shown summaries that accounted for only about £200 per annum. Redgrave told him the balance was made up of other business that had not been summarised and he produced some letter-books, diaries, and a daybook as evidence. Hurd perused these documents, but did not inspect them carefully. When the parties agreed to proceed, Redgrave refused to include any reference to the practice in the contract, which provided only for sale of the residence for £1600. Hurd paid a £100 deposit and moved into the house with his family. He soon discovered the balance of unaccounted business referred to by Redgrave had a value of no more than £6 per annum and that the legal practice was ‘utterly worthless’. He gave up possession of the residence and refused to complete the purchase. Redgrave sought an order for specific performance. Hurd’s defence was based on fraudulent misrepresentation and he counter-claimed for rescission of the contract, return of deposit, and damages. At trial Redgrave was

found to have misrepresented the takings of the business. However, Hurd was ruled not to have relied on those misrepresentations because he had been careless in giving up the opportunity to inspect the true position of the practice. Hurd appealed. Issue: The issue before the Court of Appeal was whether a representee who fails to take up a reasonable opportunity to verify the accuracy of a representation can be said to have relied on the misrepresentation. Decision: The Court of Appeal (Jessel MR, Lush and Baggallay LJJ) unanimously allowed Hurd’s appeal. The contract was rescinded and the deposit returned. But because Hurd failed to prove Redgrave had acted fraudulently, the panel refused to award damages. Extract: The extracts from the judgment of Jessel MR reveal the Court of Appeal’s reasoning. Reliance on a misrepresentation will be negated only if it can be shown the representee had knowledge of facts proving it to be untrue or had stated expressly, or shown impliedly by conduct, that there was no reliance.

[page 281]

Jessel MR As regards the rescission of a contract, there was no doubt a difference between the rules of Courts of Equity and the rules of Courts of Common Law — a difference which of course has now disappeared by the operation of the Judicature Act, which makes the rules of equity prevail. According to the decisions of Courts of Equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways, either of which was sufficient. One way of putting the case was, ‘A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that

out before he made it.’ The other way of putting it was this: ‘Even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements.’ The rule in equity was settled, and it does not matter on which of the two grounds it was rested. As regards the rule of Common Law there is no doubt it was not quite so wide. There were, indeed, cases in which, even at Common Law, a contract could be rescinded for misrepresentation, although it could not be shown that the person making it knew the representation to be false. They are variously stated, but I think, according to the later decisions, the statement must have been made recklessly and without care, whether it was true or false, and not with the belief that it was true. But, as I have said, the doctrine in equity was settled beyond controversy, and it is enough to refer to the judgment of Lord Cairns in the Reese River Silver Mining Company v Smith,7 in which he lays it down in the way which I have stated. There is another proposition of law of very great importance which I think it is necessary for me to state, because, with great deference to the very learned Judge from whom this appeal comes, I think it is not quite accurately stated in his judgment. If a man is induced to enter into a contract by a false representation it is not a sufficient answer to him to say, ‘If you had used due diligence you would have found out that the statement was untrue. You had the means afforded you of discovering its falsity, and did not choose to avail yourself of them.’ I take it to be a settled doctrine of equity, not only as regards specific performance but also as regards rescission, that this is not an answer unless there is such delay as constitutes a defence under the Statute of Limitations. That, of course, is quite a different thing. Under the statute delay deprives a man of his right to rescind on the ground of fraud, and the only question to be considered is from what time the delay is to be reckoned. It had been decided, and the rule was adopted by the statute, that the delay counts from the time when by due diligence the fraud might have been discovered. Nothing can be plainer, I take it, on the authorities in equity than that the effect of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence. One of the most familiar instances in modern times is where men issue a prospectus in which they

make false statements of the contracts made before the formation of a company, and then say that the [page 282] contracts themselves may be inspected at the offices of the solicitors. It has always been held that those who accepted those false statements as true were not deprived of their remedy merely because they neglected to go and look at the contracts. Another instance with which we are familiar is where a vendor makes a false statement as to the contents of a lease, as, for instance, that it contains no covenant preventing the carrying on of the trade which the purchaser is known by the vendor to be desirous of carrying on upon the property. Although the lease itself might be produced at the sale, or might have been open to the inspection of the purchaser long previously to the sale, it has been repeatedly held that the vendor cannot be allowed to say, ‘You were not entitled to give credit to my statement.’ It is not sufficient, therefore, to say that the purchaser had the opportunity of investigating the real state of the case, but did not avail himself of that opportunity. It has been apparently supposed by the learned Judge in the Court below that the case of Attwood v Small conflicts with that proposition. He says this: He inquired into it to a certain extent, and if he did that carelessly and inefficiently it is his own fault. As in Attwood v Small, those directors and agents of the company who made ineffectual inquiry into the business which was to be sold to the company were nevertheless held by their investigation to have bound the company, so here, I think, the Defendant who made a cursory investigation into the position of things on the 17th of February must be taken to have accepted the statements which were in those papers.8 I think that those remarks are inaccurate in law, and are not borne out by the case to which the learned Judge referred. … In no way, as it appears to me, does the decision, or any of the grounds of decision, in Attwood v Small, support the proposition that it is a good defence to an action for rescission of a contract on the ground of

fraud that the man who comes to set aside the contract inquired to a certain extent, but did it carelessly and inefficiently, and would, if he had used reasonable diligence, have discovered the fraud. As regards the facts of this case, I agree with the conclusions of [the trial judge] on every point but one, and my failure to agree with him in that one is the cause of my concurring in reversing his decision. What he finds in effect is that [Hurd] was induced to enter into the contract by a material misrepresentation made to him by [Redgrave], but he comes to the conclusion that either he did not finally rely upon that representation, or that if he did rely upon it he made an inquiry which, although ineffectual and made, as he says, carelessly and inefficiently, bound him in a Court of Equity, and prevented him from saying that he relied on the representation. I have already dealt with that as a matter of law, and I will deal with it presently as a matter of fact, because I think there was an omission to notice a most material fact, or rather, I should say, an omission to give sufficient weight to it, for it is noticed in the judgment which is now appealed from. … … [T]he learned [trial judge] came to the conclusion either that [Hurd] did not rely on the statement, or that if he did rely upon it he had shown such negligence as to deprive him of [page 283] his title to relief from this Court. As I have already said, the latter proposition is in my opinion not founded in law, and the former part is not founded in fact; I think also it is not founded in law, for when a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it is not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract, relying upon the representation. If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into it, and in order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shown either that he had knowledge of the facts contrary to the representation, or that he stated

in terms, or showed clearly by his conduct, that he did not rely on the representation. If you tell a man, ‘You may enter into partnership with me, my business is bringing in between £300 and £400 a year,’ the man who makes that representation must know that it is a material induce-ment to the other to enter into the partnership, and you cannot investigate as to whether it was more or less probable that the inducement would operate on the mind of the party to whom the representation was made. Where you have neither evidence that he knew facts to show that the statement was untrue, or that he said or did anything to show that he did not actually rely upon the statement, the inference remains that he did so rely, and the statement being a material statement, its being untrue is a sufficient ground for rescinding the contract. For these reasons I am of opinion that the judgment of the learned [trial judge] must be reversed and the appeal allowed.

Comment 14.5.1 See Radan, Gooley, and Vickovich at 14.38 and 14.44.

THE RELEVANCE OF THE MATERIALITY OF THE STATEMENT OF FACT 14.6C

Nicholas v Thompson [1924] VLR 554

Court: Full Court of the Supreme Court of Victoria Facts: Alfred and George Nicholas agreed with Thompson that they were to purchase his interest in an investment scheme involving a new process for film development for £10,000. Thompson told them he had previously been offered a large amount of money for his interest and that he had rejected it at the time. After the contract had been executed, the Nicholases discovered that Thompson made the statement fraudulently and they sued for return of the purchase price. A jury found that Thompson had made a fraudulent

misrepresentation that had induced the buyers to enter into the contract. The trial judge declared the agreement void and ordered the refund of the purchase price. Thompson appealed to the Full Court. [page 284] Issue: The Full Court had to determine whether Thompson’s misrepresentation had involved a material fact so that it was capable of inducing the Nicholases into the contract. Decision: The Full Court (Cussen ACJ, McArthur J, and Weigall AJ) unanimously found in favour of the Nicholases and rejected Thompson’s appeal. It held that the misrepresentation was material in that it operated on the minds of the buyers in such a way as to amount to an inducement sufficient to ground rescission of the contract. Extract: The extracts from the judgment of McArthur J reveal the Full Court’s view that materiality is not a separate element of misrepresentation.

McArthur J [Counsel for Thompson’s] contention was (1) that the statements were not and could not in law be regarded as representations of fact; (2) that the statements were not and could not be regarded in law as material. … In my opinion … the statement found by the jury in the present case to have been made is not only capable in law of being a statement of fact, but is a statement of fact. Whether it is a ‘material’ statement is another matter. In support of his contention ‘that the statements were not and could not be regarded in law as material’, [Counsel for Thompson] argued, first, that it is an essential part of the cause of action that the statement was a material statement; and, secondly, that to constitute a material statement the statement must be of such a nature that it would be likely to induce an

ordinary, reasonable man (as distinguished from the particular plaintiff in the particular case) to enter into the contract. He pushed this argument to this length, that, even if a false statement were made for the purpose of inducing a person to enter into a contract, and such person were in fact thereby induced to do so, he would have no remedy against the person making the statement unless he could prove, not only that the statement induced him, but that it was of such a nature that it would have been likely to have induced an ordinary reasonable man. In my opinion this argument is untenable. In the first place, notwithstanding opinions to the contrary expressed by text-writers,9 I doubt whether it is strictly and technically an essential part of the cause of action, which must be alleged and proved, that the statement was a material statement. If the defendant makes the statement for the purpose of inducing, and the plaintiff is thereby induced, that, I think, is sufficient.10 … [page 285] In Smith v Kay, the headnote, based on the judgment of Lord Chelmsford LC, puts the proposition shortly thus: When a party has practised a deception with a view to a particular end which has been attained by it, he cannot be allowed to deny its materiality.11 Lord Chelmsford LC says: The bill, therefore, being taken to contain a sufficient statement of a case against Smith, the next objection which he makes is that the representation which is alleged, if proved, is immaterial, as it could not have been the cause of the securities being given.12 And he says that the only point which could vitiate the securities would be a fraud dans locum contractui — that is, such a fraud as occasioned the contract. Now, it is contended … that this representation is wholly immaterial, that it

was perfectly indifferent to Kay in what manner Smith became the holder of the bills, provided he gave consideration for them, and that if Kay had been told the whole truth he would equally have been willing to give the securities. But can it be permitted to a party who has practised a deception, with a view to a particular end which has been attained by it, to speculate upon what might have been the result if there had been a full communication of the truth?13 The materiality of the statement is no doubt of great importance as evidence from which the inference may be drawn, first, that it was made for the purpose of inducing, and, secondly, that it did in fact induce … and no doubt in practice it has in almost all cases to be proved; but it does not appear to me to be, strictly speaking, an essential element of the cause of action.

[page 286]

Comment 14.6.1 See Radan, Gooley, and Vickovich at 14.52.

1.

See Halsbury’s Laws of England, 3rd ed, vol 26, par 1563, pp 839–40.

2. 3.

See Halsbury’s Laws of England, 3rd ed, vol 26, par 1520, p 823; Duffel v Wilson (1808) 170 ER 999; Willes v Glovers (1804) 127 ER 362; In re Pacaya Rubber & Produce Co Ltd [1914] 1 Ch 542 at 549–50. Aaron’s Reefs Ltd v Twiss [1896] AC 273 at 283–4.

4. 5.

(1884) 9 AC 187. (1859) 6 CBNS 453.

6. 7.

(1881) 20 Ch D 1 at 21. (1869) LR 4 HL 64.

8. 9.

Attwood v Small (1835–1840) 7 ER 684. See Kerr on Fraud (5th ed), pp 43, 44; Spencer-Bower on Misrepresentation, p 11, art 28; Halsbury’s Laws of England, vol xx, p 724, sec 1722.

10. 11.

Smith v Kay (1859) 7 HLC 750. Smith v Kay (1859) 7 HLC 750 at 760.

12.

Smith v Kay (1859) 7 HLC 750 at 758.

13.

Smith v Kay (1859) 7 HLC 750 at 759.

[page 287]

15 MISLEADING OR DECEPTIVE CONDUCT

INTRODUCTION 15.1 This chapter is concerned with specific legislation proscribing misleading or deceptive conduct. Originally this form of conduct was an integral feature of the consumer protection provisions that were formally contained in s 52 of the Trade Practices Act 1974 (Cth). These consumer protection provisions are now contained in the Australian Consumer Law, which is set out in Sch 2 of the Competition and Consumer Act 2010 (Cth). The regulatory provisions were replicated in numerous State Fair Trading Acts and have been incorporated into other Commonwealth statutes, such as s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). For the purposes of this chapter, emphasis will be placed upon the regulation of misleading and deceptive conduct that is currently contained in s 18 of the Australian Consumer Law together with the earlier statutory influences to that legislation. The provisions of the Australian Consumer Law are set out in Sch 2 of the Competition and Consumer Act 2010 (Cth). Section 18 of the Australian Consumer Law stipulates that ‘a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. A breach of s 18 may result in various remedies that are set out in Ch 5 of the Australian Consumer Law, such as injunctions, damages, and compensatory orders. It is often the case that statutory claims arising from a breach of s 18 will also include independent and alternative claims for misrepresentation.

One preliminary step that needs to be taken before a remedy can be obtained for breach of s 18 of the Australian Consumer Law is to identify misleading and deceptive conduct that has resulted in loss or damage. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 (see 15.2C) and Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 (see 15.3C), two cases dealing with the misleading and deceptive conduct provisions that were contained in s 52 of the Trade Practices Act, the central issues before the courts related to the need to identify conduct that could be said to be misleading. In Henjo Investments the conduct alleged to be misleading and deceptive was silence by a vendor of a restaurant. A related issue was whether an exclusion clause or disclaimer contained in the contract of purchase could exclude liability if misleading and deceptive conduct was found to exist. In Taco Co of Australia Inc the issue was once again whether particular conduct was misleading and deceptive. However, of particular interest in that case was the discussion by the Federal Court of the interaction between s 52 and the tort of passing off. [page 288] Allied to consideration of the misleading or deceptive conduct provisions are the statutory remedies available where misleading or deceptive conduct is found to have occurred. In this respect, questions arise as to whether or not a person has suffered loss as a result of breach of the misleading and deceptive conduct provisions. The causal connection between loss and breach was considered in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 (see 15.4C) and in Henville v Walker (2001) 206 CLR 459 (see 15.5C). More complicated questions arise where breach of the misleading and deceptive conduct provisions are one of two concurrent causes of loss. This question is considered in Henville. Finally, the issue of whether an agent can avoid liability for misleading and deceptive conduct on the basis that they were doing no more than passing on as a conduit representations made to them by their principal was illustrated in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (see 15.6C).

THE MEANING OF MISLEADING OR DECEPTIVE CONDUCT 15.2C

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83

Court: The Full Court of the Federal Court of Australia Facts: In June 1984 Henjo Investments Pty Ltd opened a licensed restaurant business known as ‘The New York Deli’ in Double Bay in Sydney, after having received an approval from Woollahra Council which limited the seating at the restaurant to 84 people. In July 1984 the restaurant manager, Saade, on behalf of one of the directors and controllers of Henjo, applied to the Licensing Court of New South Wales for the grant of an ‘On-Licence (Restaurant)’ in respect of the premises. The application referred to a maximum seating capacity of 84 persons to be seated at 26 tables. Notice of the application was served upon the Council, which offered no objection. In August 1984 the Licensing Court granted the licence. Soon after the restaurant opened, 120 chairs were placed in the restaurant, arranged at 39 separate tables. In early 1985 Henjo and its directors decided to sell the restaurant business and engaged Le May, a licensed business agent, for that purpose. Le May was given an instruction card by one of the directors of Henjo on which the following was stated: ‘Seats 128. Licensed.’ It was accepted in court proceedings that the card that had been signed on one side contained those words prior to it being signed by that director and prior to it being given to the business agent. Collins Marrickville Pty Ltd contracted to purchase the restaurant from Henjo. During the sale negotiations Collins Marrickville was informed that the business was ‘a licensed coffee lounge restaurant with about 120 seats known as the New York Deli’. Further, a director of Collins Marrickville was shown the instruction card containing the reference to 128 seats and, when he was taken to the restaurant, he observed that it had been set with 39 tables and 128 chairs together

with eight stools at the bar area. The contract of purchase also contained two exclusion clauses in special conditions 6 and 7. Despite being instructed to do so by one of the directors of Collins Marrickville, the solicitor for Collins Marrickville failed to make any inquiries about the licence. [page 289] Such inquiries would have revealed the limits of the approved user and, in particular, that the restaurant was being operated in a manner substantially different from that permitted by law. The purchase was completed before Collins Marrickville became aware of the true position. Collins Marrickville subsequently opened and operated the business unsuccessfully. Collins Marrickville commenced proceedings against Henjo claiming damages for misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) and later sought relief under s 87 of that Act. Issues: The principal issues before the Full Court of the Federal Court were whether Henjo had contravened s 52 of the Act by remaining silent as to the true seating capacity of the restaurant and whether Collins Marrickville relied on any such misleading conduct. Furthermore, a question arose as to whether the exclusion clauses could operate to defeat claims made under s 52. Decision: The Full Court of the Federal Court (Lockhart, Burchett, and Foster JJ) unanimously held that Collins Marrickville succeeded on the issue of liability, holding that silence may be relied on to show a breach of s 52 in circumstances that gave rise to an obligation or duty to disclose relevant facts, and that the existence of such an obligation or duty was not negated because inquiries could be made that would have disclosed the true position. The court also found that recovery pursuant to s 52 of the Act was founded on actual reliance upon the misleading or deceptive conduct, although it was acknowledged that that conduct did not need to be the only factor

in inducing the innocent party to enter into the agreement. Furthermore, the court found that exclusion clauses of the type contained in the business sale agreement could not operate to defeat claims under s 52. Extract: The extract from the judgment of Lockhart J discusses the meaning of s 52 and whether exclusion clauses can exclude liability for breaches of the section.

Lockhart J Section 52 has been considered by the High Court and this court in many cases, and its interpretation and breadth have evolved in the light of the facts of each case. The section is expressed in general terms and is designed to have ‘a broad reach’.1 It is a provision to protect the consuming public from unfair trading practices, namely, from being misled or deceived.2 It is now established that intent is not a necessary element in a contravention of the section.3 However, as I observed in Bridge Stockbrokers Ltd v Bridges,4 there are cases where [page 290] there will be deceptive conduct only where the intention of the alleged contravenor is established. The Compact Edition of the Oxford English Dictionary 1987 defines the word ‘mislead’ in its transitive sense as ‘to lead astray in action or conduct; to lead into error; to cause to err’. ‘Deceive’ is defined as ‘to ensnare; to take unawares by craft or guile; to overcome, overreach, get the better of by trickery; to beguile or betray into mischief or sins; to mislead’. This approach to determining the meanings of the terms appearing in s 52 is consistent with the approach adopted by Franki J in Weitmann v Katies Ltd.5 The two words, ‘misleading’ and ‘deceptive’, are plainly not synonymous. That is not to say that each word may not catch some of the same conduct

and that there may not be some degree of overlap. ‘Mislead’ does not necessarily involve an element of intent and it is a word of wider reach than ‘deceive’. However, it is difficult, in my opinion, to read the word ‘deceive’ in s 52 other than as involving some degree of moral turpitude as it does in ordinary English usage. Trickery, craft and guile, though not essential elements of liability, are typically at the heart of this second element of the statutory provision directed to the protection of the public from unfair trading practices. Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it is erroneous to approach s 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words which, if I may be forgiven for repeating them, say simply: ‘a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. There is no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one’s own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case it is necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of its nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to mislead or deceive. … In my opinion the real complaint against the conduct of Henjo and Mr Saade in this case arises from their silence in not informing Collins Marrickville of the true position with respect to the limitations on seating capacity and the use to which the bar area could be put. … At common law, silence can give rise to an actionable misrepresentation where there is a duty upon the representor to reveal a matter if it exists, and where the other party is therefore entitled to infer that matter does not exist from the silence of the representor.6 The circumstances in which silence may constitute misleading conduct under the Act were referred to in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd. That case established that silence may be relied on in order to show a breach of s 52 when the

[page 291] circumstances give rise to an obligation to disclose relevant facts.7 The duty to disclose is not confined to cases where there are particular relationships, such as trustee and beneficiary or solicitor and client, principal and agent and guardian and ward. There is no useful purpose in seeking to analyse the circumstances in which the duty to disclose will arise as this must depend on the facts of each case. In the present case the vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity, limitations imposed by both the licensing authorities and the local council which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law with a substantial element of overseating. The vendor’s agent had given the purchaser to understand that the limitations upon the seating capacity and the limitations arising from the licensing of the restaurant were less restrictive than was in fact the case, while the manner in which the business was conducted at the time of sale supported this understanding. In my opinion these circumstances gave rise to a duty on the part of Henjo as vendor to reveal the true position to Collins Marrickville, the potential purchaser, before any contract was signed. It is no answer to say that Collins Marrickville should have made its own inquiries and that, if it had done so, it would have found out the true position: see Redgrave v Hurd,8 in the context of the equitable right to rescind for innocent misrepresentation. It is true that Mr Collins recognised the importance of verifying the material given to him by Mr Le May about the seating capacity of the restaurant and that, had his solicitor done what he should have done, the true position would have emerged and the sale probably would not have proceeded. But these circumstances did not negate the duty to disclose which the circumstances otherwise imposed. … It is broadly true that an applicant in an action under s 52 cannot recover damages unless he establishes that he acted on or was influenced by the conduct contravening the section.9 The issue of the applicant’s reliance upon such conduct is, however, more complex than such a formulation indicates. The trial judge noted the similarity between conduct constituting

deceit at common law and conduct contravening s 52, and referred to the principles which determine whether there has been inducement in actions for deceit. These principles were reviewed by Wilson J in Gould v Vaggelas.10 His Honour there observed that the inference that the applicant relied upon a material representation calculated to induce him to enter a contract might be rebutted by showing that ‘whether he knew the true facts or not he did not rely upon the representation’. His Honour noted that the representation made ‘need not be the sole inducement. It is sufficient so long as it plays some part, even if only a minor part, in contributing to the formation of the contract’. In Nielsen v Hempston Holdings Pty Ltd,11 a case which concerned an action for damages under s 52 where misleading statements had been [page 292] made to the applicant as to the occupancy rate of a motel, Pincus J held that the causal chain allowing recovery of damages under s 52 of the Trade Practices Act was not broken even where the applicant had failed to take reasonable care of his own interests by undertaking a proper investigation of the figures presented. These decisions support the view that recovery under s 52 is founded by the applicant’s actual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the applicant’s decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity. … Doubtless Collins Marrickville could have ascertained the true position about the restaurant’s licences if it had inquired about them; but it did not do so. Even if Mr Tadd or Mr Jones, as advisers to [Collins Marrickville], were on inquiry as to the matter in issue, this should not itself be taken to exclude recovery under s 52. It is true that at common law, the principal has imputed knowledge of that which is, or ought to be, known by his agent. There is authority that a client who employs a solicitor in a conveyancing transaction has imputed to him knowledge of anything which is known to his solicitor or would have been known to his solicitor on the proper inquiries.12 In an action under s 52, however, the issue is whether

the misleading and deceptive conduct alleged continues to be operative in fact, whatever the knowledge which might have been obtained had the applicant’s advisers conducted their investigations in a proper manner, and whatever the matters of which those advisers might have constructive notice.13 This reasoning is the stronger where a party who would otherwise be liable on account of conduct found to be misleading or deceptive seeks to rely upon knowledge notionally attributed to the innocent party so as to avoid liability. In my opinion the trial judge correctly rejected the argument that Collins Marrickville had constructive notice of these matters. I turn now to the two special conditions, 6 and 7. The trial judge considered the effect of special conditions 6 and 7 of the contract for sale and found that they did not operate to defeat a claim under s 52, whatever effect they may have in the law of contract, because an exclusion clause of that kind cannot oust the effect of the Act or deprive an applicant of remedies under it. If in fact there was misleading conduct by Henjo which induced Collins Marrickville to enter into the contract, that inducement was not negated because, in the agreement itself, the parties may have said to the contrary. Special condition 6 is expressed simply as an acknowledgement by the purchaser. In my opinion the acknowledgement by the purchaser contained in the special condition … is an acknowledgement essentially as to the physical state of the premises themselves together with rights and privileges, if any, which pertain to the premises as a physical structure. The special condition is not concerned with the use to which the premises may be put. It is not directed to licences or other rights from statutory authorities to conduct business on the premises of a certain kind and it does not encompass rights of the kind with which this case is concerned, [page 293] namely, the rights from the council and the Licensing Court as to the number of persons who may be seated and the number of tables at which they may be seated in the restaurant premises and served with liquor or whether certain parts of the premises may or may not be used for the service of liquor. Although these restrictions from the authorities are issued

with respect to the premises themselves, they have relevance only to the use to which the premises may be put in carrying on business upon them. They do not fall within the ambit of special condition 6, having no substantial nexus with the condition or location or physical structure of the premises. Although special condition 7 is couched in wide language, in my opinion it purports to exclude promises, representations, warranties and undertakings or conditions of a contractual kind not embodied in the contract for sale itself and is not directed to representations by silence which have origin or effect outside the law of contract. It may be that special condition 7 would deny [Collins Marrickville] a right of contractual damages arising from the misrepresentation as to seating capacity, and would exclude an action based on common law misrepresentation in the absence of fraud preventing the defendant from relying upon the condition. It remains that, even if the intention of special condition 7 was to restrict the terms of the transaction to those embodied in the written agreement, on construction the condition addresses active representations rather than the failure of one party to the agreement to make disclosure to the other where circumstances required it to do so. Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case is concerned falls literally within them or not. Section 52 is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under s 52. It may be, as the judgment of Sweeney J in P J Berry Estates Pty Ltd v Mangalore Homestead Pty Ltd14 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s 52 and the making of the agreement in issue. Where the conduct of the defendant is alleged to be fraudulent in character, then an exclusion clause will be no more effective to defeat the action than it would be effective if the action were brought in the tort of deceit in relation to conduct antecedent to the contract.15 There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private

agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.

[page 294]

Comment 15.2.1 See Radan, Gooley, and Vickovich at 15.29, 15.31, and 15.35. 15.3C

Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

Court: The Full Court of the Federal Court of Australia Facts: Taco Company of Australia Inc (Taco Australia) was incorporated in Delaware in the United States for the purpose of establishing and operating Taco Bell restaurants in Australia. Commencing in the 1970s, Taco Bell Pty Ltd (Taco Bell), under its former name of B & B Mexican Enterprises Pty Ltd, conducted a Mexican food restaurant at Bondi under the name ‘Taco Bell’s Casa’. In December 1976 B & B changed its name to Taco Bell Pty Ltd. In 1981 Taco Australia opened two Mexican food restaurants in Sydney and by September 1981 each traded under the name ‘Taco Bell’. Subsequently proceedings were commenced by Taco Bell against Taco Australia seeking injunctions first to restrain Taco Australia from operating any restaurant in the Sydney metropolitan area under the name ‘Taco Bell’ or any name deceptively or misleadingly similar thereto or which was likely to deceive or mislead by reason of its similarity thereto, and second to restrain Taco Australia from passing off goods and services supplied in any restaurant in the Sydney metropolitan area not supplied by Taco Bell as and for goods and services supplied by Taco Bell. Taco Australia cross-claimed for the

same reasons. The trial judge found in favour of Taco Bell. Taco Australia then appealed to the Full Court of the Federal Court. Issue: The issue before the Full Court of the Federal Court was whether Taco Australia had engaged in misleading or deceptive conduct. This involved an assessment of what constituted conduct that amounted to a breach of s 52 of the Trade Practices Act. Decision: The Federal Court (Franki, Deane, and Fitzgerald JJ) unanimously dismissed Taco Australia’s appeal. Extract: The extract from the joint judgment of Deane and Fitzgerald JJ discusses the meaning of s 52 and its relationship with the tort of passing off. (The tort of passing off is an action by A to prevent financial loss arising from a representation by B that his or her services are those of A.)

Deane and Fitzgerald JJ The relationship between s 52(1) and passing-off In Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd,16 the High Court considered the operation of s 52(1). The decision involved, directly, only the [page 295] narrow issue of whether the use by one party of a name which was accurately descriptive of the nature of its business was misleading or deceptive because its use led persons to believe that it was associated with another party which had a similar descriptive name. The court allowed an appeal from the Commonwealth Industrial Court which had granted an interlocutory injunction. The decision was delivered before the words ‘or is likely to mislead or deceive’ were introduced in s 52(1) in 1977. The leading judgment was delivered by Stephen J. … Whilst, as was pointed out by Stephen J,17 the long experience in the courts

in relation to passing-off should not be disregarded and some principles which have been developed in that context may be also applicable to s 52, it is, in our opinion, important to heed his Honour’s emphatic rejection … of any suggestion that s 52 is no more than a statutory re-enactment of passing-off principles.18 The backgrounds of s 52 and of the law of passingoff are quite different. Their respective purposes and the interests which they primarily protect are contrasting. Their areas of operation do not coincide. The indiscriminate importation into s 52 cases of principles and concepts involved in passing-off and the associated area of trade mark law is likely to be productive of error and to give rise to arguments founded on false assumptions.

Deception up to ‘the point of sale’ It was submitted by [Taco Australia] that conduct cannot constitute a contravention of s 52 unless it causes, or is likely to cause, misleading or deception which continues to what was described as ‘the point of sale’. This submission involved the application to s 52 of what was said to be a principle of the law of passing-off. In support of it, reliance was placed upon the following comments of Lockhart J in Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd: There is evidence that some buyers in supermarkets seeking Moccona first mistakenly select Andronicus; but realize their mistake before paying for their purchases at the cashier’s desk. These incidents do not support the applicant’s case. I adopt the following passage from the opinion of the Judicial Committee, given by Lord Scarman, in Cadbury-Schweppes Pty Ltd v Pub Squash Co Pty Ltd: ‘He (the learned trial judge) accepted that on occasions there was confusion at the point of sale: but he found, and there was plenty of evidence on which he could find, that the confusion was almost always corrected before the moment of sale. Such confusion as there was arose, in his view, from the casual attitude of many purchasers in the market to the product offered and not from any failure of the defendant sufficiently to distinguish its product from “Solo”’.19 The Pub Squash case concerned passing off and not misleading or deceptive conduct under the Trade Practices Act

1974; but the passage which I have cited applies in my opinion to the present case.20 [page 296] It is, however, apparent that Lockhart J was not … seeking to lay down any general principle of law either as to the point at which or as to the period for which there must be misleading or deception or a likelihood of misleading or deception before one can have a contravention of s 52. His Honour’s remarks and the quoted comments from the opinion of the Privy Council in Cadbury-Schweppes v Pub Squash were, in each case, made in connection with what was alleged to be deceptively similar labelling and packaging of two brands of a product, and were particularly concerned with the presentation of the rival brands for sale, rather than with advertising or other aspects of the respondent’s conduct. In each there was a critical finding of fact that the evidence did not establish even confusion between the two brands except in the casual act of initially picking up the one brand for the other. Neither brand was deliberately selected for purchase, and neither was purchased, under a mistaken belief. The passage quoted from Stuart Alexander v Blenders fits easily into place if taken in conjunction with another passage from Lockhart J’s judgment: The plain fact is that the two brands of coffee are well known and the brand names are prominently displayed on every label. In my view there is no real likelihood of confusion, let alone confusion to the extent of being misled or deceived.21 Nor would it accord with the legislative purpose underlying s 52 to import from the law of passing-off a limitation restricting the applicability of the section to conduct which misleads or deceives, or is likely to mislead or deceive, ‘up to the point of sale’. The mere fact that such a principle existed in a field of law concerned primarily with protecting the business or goodwill of a trader against the conduct of others would be of little relevance in determining the scope of the statutory provisions of s 52. It is true that a rival trader may take advantage of that section to obtain an effective remedy in respect of conduct which answers the statutory

description and causes damage to the goodwill of his business.22 It is, however, a matter of debate as to whether such protection of rival traders should properly be seen as part of the legislative purpose to be discerned in s 52.23 Even if it should, it is plain that the primary legislative purpose which s 52 was intended to serve is consumer protection.24 It would ill accord with that primary purpose to restrict the operation of the section to conduct which, at common law, would entitle a trader to sue a rival or to impose a limitation upon that operation merely because the common law accepted, or was thought to accept, such a limitation as applicable to proceedings for passing-off. It is, in the circumstances, unnecessary that we form or express any concluded view on the question whether it is a principle of the law of passing-off that deception must continue, or be likely to continue, to the ‘point of sale’. As a matter of principle and of logic, it is difficult to see why it should be. For the purposes of the present appeal, it suffices to say that, even [page 297] if such a limitation should be recognized in the law of passing-off, we see no ground for importing it into the provisions of s 52 of the Act. In our view, it is sufficient to enliven s 52 that the conduct, in the circumstances, answers the statutory description, that is to say, that it is misleading or deceptive or is likely to mislead or deceive. It is unnecessary to go further and establish that any actual or potential consumer has taken or is likely to take any positive step in consequence of the misleading or deception. That is not to say that evidence of actual misleading or deception at the point of sale and of steps taken in consequence thereof is not likely to be both relevant and important on the question whether the relevant conduct in fact answers the statutory description and as to the relief, if any, which should be granted.

McWilliam’s v McDonald’s and ‘erroneous assumption’ The question whether particular conduct of which complaint is made is misleading or deceptive or likely to mislead or deceive is, in the ordinary case, a question of fact to be answered in the context of the evidence as to

the alleged conduct and as to relevant surrounding facts and circumstances. If the resolution of the question were entrusted to a jury, the question whether a respondent had engaged in conduct of the type described in s 52 would be susceptible of a simple monosyllabic answer without disclosure or record of reasoning processes. Where resolution of the question is entrusted to a court constituted by a judge without a jury, however, it is encumbent upon the court to indicate the process of reasoning which has led to the answer which is given. It is inevitable that that process of reasoning will tend to be worded in the language of the lawyer and that the path to decision of the factual question will be paved with generalizations which, particularly when enshrined in the volumes of law reports, bear a superficial resemblance to formulations of legal principle but which are, in truth, no more than part of an exposed process of reasoning in the course of deciding the question of fact. In McWilliam’s v McDonald’s a Full Court of this court held that conduct of McWilliam’s in using the expression ‘BIG MAC’ in connection with the supply or possible supply of wine, in a context where that expression was well known as the name of a particular type of hamburger sold by McDonald’s, did not constitute conduct which was misleading or deceptive or likely to mislead or deceive within the meaning of s 52(1) of the Act. In the course of their respective judgments, Smithers and Fisher JJ placed particular emphasis on the fact that a person would only be misled or deceived into thinking that the use of the expression ‘BIG MAC’ by McWilliam’s indicated some arrangement between McWilliam’s and McDonald’s if he made the erroneous assumption that the expression could not have been used by McWilliam’s in the absence of such an arrangement. There has been a tendency — in our view mistaken — to see their Honours’ comments in that regard as involving some general proposition of law to the effect that intervention of an erroneous assumption between conduct and any misconception destroys a necessary chain of causation with the consequence that the conduct itself cannot properly be described as misleading or deceptive or as being likely to mislead or deceive. In truth, of course, no conduct can mislead or deceive unless the representee labours under some erroneous assumption. Such an assumption can range from the obvious, such

[page 298] as a simple assumption that an express representation is worthy of credence, through the predictable, such as the common assumption in a passing-off case that goods marketed under a trade name which corresponds to the well-known trade name of goods of the same type have their origins in the manufacturer of the well-known goods, to the fanciful, such as an assumption that the mere fact that a person sells goods means that he is the manufacturer of them. The nature of the erroneous assumption which must be made before conduct can mislead or deceive will be a relevant, and sometimes decisive, factor in determining the factual question whether conduct should properly be categorized as misleading or deceptive or as likely to mislead or deceive. Beyond that, generalizations are themselves liable to be misleading or deceptive. Thus, one might generalize that the need for a simple assumption that an express representation is literally true could never be a factor militating against a finding that conduct which has misled or deceived is of its nature misleading or deceptive. Such a generalization would, however, ignore the part that irony can legitimately play in human communications. On the other hand, conduct which could only mislead or deceive if the representee were to make a fanciful assumption and which ordinarily would be innocent, may be misleading or deceptive if it appears that the person engaging in the conduct knew that the person to whom the relevant conduct was directed was convinced of the validity of that assumption.

Confusion In McWilliam’s v McDonald’s, the Full Court held that, although the conduct of McWilliam’s was likely to have caused confusion or wonderment, it did not appear that in the particular circumstances of that case the conduct was misleading or deceptive or likely to mislead or deceive. As we read their Honours’ judgments, that was a factual conclusion. Their Honours were not suggesting that there is, for the purposes of s 52 of the Act, a necessary dichotomy between ‘confusion’ on the one hand and ‘misleading or deception’ on the other. Conduct which produces or contributes to confusion or uncertainty may or

may not be misleading or deceptive for the purposes of s 52. In some circumstances, conduct could conceivably be properly categorized as misleading or deceptive for the very reason that it represents that confusion or uncertainty exists where, in truth, there is no proper room for either. Ordinarily, however, a tendency to cause confusion or uncertainty will not suffice to establish that conduct is of the type described in s 52. The question whether particular conduct causes confusion or wonderment cannot be substituted for the question whether the conduct answers the statutory description contained in s 52. As has already been noted, the High Court in Hornsby Building Information Centre v Sydney Building Information Centre held that the respondent’s use of a name similar to the name of the applicant did not, in the particular circumstances of that case, offend s 52(1). The names there were descriptive and thus not distinctive of any particular business. However, the possibility of confusion was recognized and the conclusion was arrived at, notwithstanding evidence that persons had been led, by the similarity of names, to believe [page 299] that the Hornsby Centre was a branch of, or otherwise associated with, the Sydney Centre. Stephen J said: Evidence of confusion in the minds of members of the public is not evidence that the use of the Hornsby Centre’s name is itself misleading or deceptive but rather that its intrusion into the field originally occupied exclusively by the Sydney Centre has, naturally enough, caused a degree of confusion in the public mind. This is not, however, anything at which s 52(1) is directed.25 The case of Hornsby Building Information Centre v Sydney Building Information Centre provides guidance as to the general approach to be adopted in s 52 cases involving the use of similar names. As Stephen J said, it is ‘of particular importance to identify the respect in which there is said to be any misleading or deception’ and ‘to determine whether there has been any contravention of s 52(1) it is necessary to inquire why …

misconception has arisen’.26 In World Series Cricket v Parish Brennan J correctly commented that ‘a statement which conveys no meaning but the truth cannot mislead or deceive or falsely represent; although a statement which is literally true may nevertheless convey another meaning which is untrue, and be proscribed accordingly’.27 Irrespective of whether conduct produces or is likely to produce confusion or misconception, it cannot, for the purposes of s 52, be categorized as misleading or deceptive unless it contains or conveys, in all the circumstances of the case, a misrepresentation. The difficulty which will commonly arise in a s 52 case is in determining whether the conduct contains or conveys, in all the circumstances, a misrepresentation and in assessing the significance to that question of evidence that one or more persons were in fact led into error. In extreme, but not necessarily infrequent, cases, it may be correct to hold that, as a matter of law, conduct said to contravene s 52 is incapable of conveying the untrue meaning alleged or any other false meaning. Such cases aside, whether or not conduct amounts to a misrepresentation is a question of fact to be decided by considering what is said and done against the background of all surrounding circumstances. In some cases, such as an express untrue representation made only to identified individuals, the process of deciding that question of fact may be direct and uncomplicated. In other cases, the process will be more complicated and call for the assistance of certain guidelines upon the path to decision. In a case, such as the present, where the suggested misrepresentation has not been expressly made and it is alleged that the relevant deception or misleading is, or is likely to be, of the public, the following propositions appear to be established as affording guidance. [page 300] First, it is necessary to identify the relevant section (or sections) of the public (which may be the public at large) by reference to whom the question of whether conduct is, or is likely to be, misleading or deceptive falls to be tested.28 Second, once the relevant section of the public is established, the matter is

to be considered by reference to all who come within it, ‘including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations’.29 Thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The court must determine that question for itself. The test is objective.30 Finally, it is necessary to inquire why proven misconception has arisen.31 The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct on the part of the respondent.

[page 301]

Comment 15.3.1 See Radan, Gooley, and Vickovich at 15.39, 15.44, and 15.54.

STATUTORY REMEDIES FOR MISLEADING OR DECEPTIVE CONDUCT 15.4C

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494

Court: High Court of Australia Facts: Marks and a number of other borrowers borrowed money

from one of the four members of the GIO group of companies. GIO called the loan facility an ‘Asset Accumulator Account’. GIO told the borrowers that it would charge interest on the loans at a rate calculated as a base rate plus a margin of 1.25 per cent and that the margin would not change during the term of the loan. The borrowers relied on this representation in entering into the loan transaction. The base rate was the average for the month of the daily 90-day bank bill rate. On 21 April 1992 the borrowers received a letter from GIO telling them that GIO proposed to increase the interest rate margin from 1.25 per cent to 2.25 per cent with effect from 1 August 1992. The loan agreements that the borrowers had signed permitted GIO to change the interest rate margin in this way. The borrowers sued GIO in the Federal Court, seeking relief for misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) in relation to the loan facility. The trial judge found that GIO engaged in misleading or deceptive conduct, as the borrowers had relied on the fact that the 1.25 per cent margin would be stagnant for the life of the loan, and awarded damages pursuant to s 82 of the Act, but rejected the borrowers’ claim for relief under s 87 of the same Act. GIO’s appeal to the Full Court of the Federal Court was successful. The borrowers then appealed to the High Court. On appeal there was no issue that GIO had engaged in misleading or deceptive conduct. Issue: The issue before the High Court was whether the borrowers were entitled to relief under the Trade Practices Act. Decision: The majority of the High Court (Gaudron, McHugh, Gummow, Hayne, and Callinan JJ; Kirby J dissenting) dismissed the appeal, holding that the borrowers were not entitled to damages under s 82, as they had suffered no loss as a result of the contravention of s 52. Extract: The extracts from the three judgments of the majority judges discuss the availability of remedies pursuant to ss 82 and 87 of the Trade Practices Act in the context of the facts of the case.

[page 302]

Gaudron J Before turning to the argument, it is convenient to note two matters which are clear from the terms of ss 82 and 87. The first is that for a person to obtain relief under those sections he or she must have suffered loss or damage or, in the case of s 87, be likely to suffer loss or damage. The second is that there is no punitive aspect to these provisions, they being concerned solely to provide for recovery of ‘the amount of the loss or damage [suffered]’ (s 82) or to ‘compensate’ for or ‘prevent or reduce’ loss or damage (s 87). Section 82 of the Act was considered by this court in Gates v City Mutual Life Assurance Society Ltd. That, too, was a case involving a contract that did not incorporate the terms as represented. And as in this case, the representation was not contractual. The question in Gates was identified as ‘the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of [Pts IV and V of the Act]’.32 The Full Court’s distinction between ‘expectation’ loss and ‘consequential’ loss for the purposes of ss 82 and 87 of the Act may be traced to the joint judgment of Mason, Wilson and Dawson JJ in Gates. Their Honours said: The Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed — he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).33

Their Honours concluded that, although not bound to make a definitive choice, there was ‘much to be said for the view that the measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements’. Their Honours added that ‘[s]uch conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement’.34 The distinction between ‘expectation’ loss and ‘reliance’ loss for the purposes of the law of contract is well recognised. However, it is a distinction that is apt to mislead if transposed into other contexts. Contrary to what might be thought, the term ‘expectation’ loss does not indicate that damages are payable simply for thwarted expectations.35 Rather, damages [page 303] are payable for the loss involved in non-performance of the contract. Even if a contract is not susceptible of specific performance, the other party is legally entitled to expect its performance. Hence the expression ‘expectation loss’!36 The matter may be put another way. Non-performance is, in effect, the loss of a contractual promise which, itself, is a valuable right. That loss must be compensated by an award of damages in the sum that represents the value of that right.37 Moreover, other losses may be sustained in consequence of the breach and, if so, they, too, must be compensated by an award of damages. On the other hand, the law of tort confers no right over and above a right to recover damages for loss sustained in consequence of the wrongful act involved. When regard is had to the different nature of contractual and tortious liability it is apparent that the so-called different ‘measure of damages’ in contract and tort is no more than a convenient way of indicating that the wrong involved and, thus, the loss occasioned by a breach of contract is of a different kind from that involved in and occasioned by the commission of a tort. The position is explained in McGregor on Damages: In contract … the wrong consists not in the making but in the

breaking of the contract and therefore the plaintiff is entitled to be put into the position he would have been in if the contract had never been broken, or in other words, if the contract had been performed. The plaintiff is entitled to recover damages for the loss of his bargain. In tort, on the other hand, no question of loss of bargain can arise: the plaintiff is not complaining of failure to implement a promise but of failure to leave him alone.38 Once it is appreciated that references to the ‘established measures of damages … [for] contract and tort’, as in Gates, signify different kinds of loss and not different methods by which loss is measured, it is irrelevant to inquire as to the appropriate measure of damages for the purposes of ss 82 and 87 of the Act. Rather, the task is simply to identify the loss or damage suffered or likely to be suffered and, then, to make orders for recovery of that amount under s 82 or to compensate for or prevent or reduce that loss or damage under s 87 of the Act. Moreover, once it is appreciated that, for the purposes of the law of contract ‘expectation’ loss signifies the loss of a valuable right, namely, the contractual promise, it is irrelevant and quite misleading to ask whether, in the case of misleading and deceptive conduct under s 52 of the Act, ss 82 and 87 allow for ‘expectation’ loss or ‘consequential’ loss. It is irrelevant, because, if the misrepresentation is not contractual, there can be no loss of a contractual promise. It is misleading because it tends to suggest that if ‘expectation’ loss is not recoverable, the claimant can never be compensated in an amount equivalent to that which would be payable if the representation were contractual. Not only is it misleading to speak of ‘expectation’ loss and ‘reliance’ loss in the context of s 82, but there is no basis for thinking that relief under s 82 is to be confined by analogy either with actions in contract or in tort. With regard to that last matter, all members of the court [page 304] are agreed. We differ only in our approach to the question whether, in the

circumstances, the [borrowers] suffered or were likely to suffer loss or damage. In the view taken by McHugh, Hayne and Callinan JJ, the [borrowers] did not establish that they were worse off as a result of entering into loan agreements with the GIO. Gummow J is of the view that it may be assumed that they would or would likely have been worse off but for the GIO’s allowing them to elect to refinance without penalty, while Kirby J is of the view that the [borrowers] were worse off and are thereby entitled to recovery. For the reasons which follow, I am in substantial agreement with the approach taken by Gummow J. There being nothing in the Act to suggest otherwise, it is for an applicant for relief under s 82 or s 87 to establish what he or she has lost or, in the case of s 87, what he or she is likely to lose. In a case such as the present, if an applicant can establish that, but for the misleading and deceptive conduct, he or she would have entered into a contract that would have returned the very benefit that was represented, damages will be the same as if the representation had been contractual. … In that situation, however, ‘it is for the [applicant] to establish that he could and would have entered into [that other] contract’.39 Moreover, there may be cases where an applicant establishes that, but for the contravention of s 52 of the Act, he or she would not have entered into the contract in question or into any other contract or arrangement of that kind. It is possible — although not inevitable — that, in that situation also, the loss will be the same in money terms as it would have been if the representation were contractual. In this case, the [borrowers] did not assert that, but for the contravention of s 52 of the Act, they would have entered into loan agreements which accorded with their understanding of their arrangement with the GIO. Indeed, there was no evidence that loan facilities of that kind were available. Nor did the [borrowers] establish that, but for the contravention, they would have entered into loan agreements which were more beneficial than those entered into with the GIO. Again the evidence is that that was not possible. Nor did they claim that, but for the contravention, they would not have taken out loans at all. Rather, their case was simply that they suffered loss simply by variation of the margin.

There being no evidence of the kind to which I have referred, the [borrowers] failed to establish that they had suffered any loss or damage and were, thus, not entitled to any remedy under s 82 of the Act. However, the [borrowers’] entitlement to relief under s 87 does not depend on proof of actual loss or damage. Relief may be granted under that section if a person is ‘likely to suffer’ loss or damage. And as a matter of ordinary language, the expression ‘likely to suffer’ imports only that loss or damage is a real chance or possibility, not that it is more likely than not. It may be that the [borrowers] could have put a case that, if held to their arrangements with the GIO, they either suffered or were likely to suffer loss or damage of a kind that should attract relief under s 87 of the Act. In this regard, it might have been put, for example, that it was likely that the margin might be increased so that interest was payable at a rate so much [page 305] in excess of prevailing commercial rates that the [borrowers] would then say that, had they appreciated that at the time, they would either have entered into more beneficial arrangements with other finance providers or, perhaps, not have entered into any loan arrangement at all. It is apparent from its terms that s 87 allows for relief which is tailored to the particular case and is not confined by notions drawn from equity although … the principles which govern equitable remedies may provide guidance as to the appropriate order in a particular case. Had the [borrowers] been held to their contracts, s 87 may well have authorised orders preventing loss or damage in the event that the margins were to be varied so that the interest payable exceeded prevailing rates. However, … the [borrowers] were given the opportunity to refinance without penalty. They elected not to. Not having been held to their contracts, they are not entitled to relief on the basis indicated. And as already pointed out, nor was it sought.

McHugh, Hayne, and Callinan JJ [B]oth ss 82 and 87 require examination of whether a person has

suffered (or, in the case of s 87, is likely to suffer) loss or damage ‘by conduct of another person’ that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg, s 52) or with equity (eg, s 51AA) but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies. Gates did not hold to the contrary. In that case [Mr Gates] claimed that he had been misled by a misrepresentation about the circumstances in which benefits would be payable under a total disability clause which he had added to his existing superannuation policy issued by the respondent. In fact, the clause p