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CONTRACT TERMS AND INTERPRETATION

EXPRESS TERMS

L’Estrange v Graucob Ltd [1934] 2 KB 394 ---> When the contract is signed, all the express terms apply even if the parties did not know of them.

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] ---> when the contract is not signed but there are "onerous and unusual" terms, these terms must be brought to the defendant's attention.


See unorous and unusual terms in contracts which are signed : Interfoto expansion.

Standard term contracts

When the parties fill in the standard terms part, but contradict it in specific terms : the specific overides the general

Robertson v French (1803) ---> If there is a need to understand the meaning of the contract as a whole, the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning ---> they will have a greater effect

The battle of the forms, the last shot approach ---> the party who last put forward their terms without being rejected by the other party.

Butler Machine Tool Co Ltd v Ex-Cell-O Corpn Ltd [1979]  ---> Buyer sent back order form which did not contain price variation clause, but did have a tear off acknowledgment slip which seller duly sent back.  

IMPLIED TERMS

Marks and Spencer plc v BNP Paribas Securities Services Trust [2015] ----

  • the standard for the implied term is necessity (to make the contract work, give it buisness efficiency, was so obvious that it went without saying)
  • fairness is not enough on its own to justify implication of a term
  • Implication comes after interpretation, and construing the words that are used
  • Buisness efficiency and obviousness are alternatives



Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10: Lord Hoffmann described implication as part of the general exercise of construction, meaning that you read the contract as a whole and see what is missing that needs to make the contract reasonable (what a reasonable person would understand it to mean).

The Moorcock (1889) ---> implied term requiring D to take reasonable care to ascertain safety of berth is necessary for business efficacy

Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] ---> the exclusion clause should not be narrowly interpreted, since this is a commercial contract

Photo Production v Securior Transport [1980] ---> when the parties have equal bargaining power, and they expressly choose to take risks (e.g. liability exclusion), parties are free "to look after their own interests". And construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning are not "the place of the courts".


Irish Bank Resolution Corporation v Camden markets Holding Corp [2017] ---> terms implied which are in contradiction with express terms will not be applied.

Henry Kendall & Sons v William Lillico & Sons [1969]  ----> terms implied by prior course of dealing

North and South Trust Co v Berkeley 1971 ----> Terms implied by trade and custom must be

  1. in accordance with express terms
  2. must be reasonable
  3. must not be contrary to law
  4. must be known by the party against whom it is invoked

Shell v Lostock Garages ----> there is not implied term of fairness and non discrimination. Where buisness parties have entered into detailed drafted contracts, parties are bound to agreement even if they are prejudiciable to them.

When the two parties are not buisness parties, courts take into account broader factors (outside of the draft of the contract) ---> -   

Scally v Southern Health and Social Services Board [1992] ---> the employee cannot reasonably be expected to know of the term.

INTERPRETATION

Six leading cases in the modern approach of contractual interpretation

Judgment of Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers ---> Objective meaning of the language which the parties have chosen


Bank of Credit and Commerce International SA v Ali (no 1) [2002]  ---> no conceptual limit as what is regarded as background as long as it is relevant)


Re Sigma Finance Corp [2010] ----> Consider the contract as a whole


Wood v Capita Insurance Services [2017] ----> Consider the context of the contract


If there are two possible interpretations, favour the one that gives business common sense


Cottonex Anstalt v Patriot Spinning Mills [2014] ---> the court is not entitles to favour interpretation in line with buisness common sense


Rainy Sky SA v Kookmin Bank [2011] UKSC  ----> If the parties use unambiguous language, the courts must apply it


Is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?

PAROL EVIDENCE RULE

Goss v Lord Nugent (1833) 5 B & Ad 58 ----> no evidence of verbal exchange can be adduced to alter the written terms of the contract

Prenn v Simmonds [1971] 3 All ER 237 ---> no evidence of prior negotiations

James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] ---> subsequent conduct (Whatcham reversed - even when the contract is ambiguous)


Northrop Grumman Missions Systems Europe Ltd v BAE Systems [2015] ---> Prior negotiations can be used as evidence of fact to interpret the contract (but not the bargaining positions or the subjective intention of the party)

Exceptions to the parol evidence rule

Collateral contract : City and Westminster Properties (1934) 

Document was not intended as a complete record of contract terms :Harris v Rickett (1859) 4 H & N 1

Ilegality : Collins v Blantern (1767) 

Misrepresentation :Dobell v Stevens (1825) 

Rectification : Murray v Parker (1854) 

RECTIFICATION

Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA ---> criterias for claim for rectification for common mistake :

  1. Objective assessment of the common intention of the parties (despite the lack of an antecedent accord) ---> Chartbrook Ltd v Persimmon Homes Ltd [2009] 
  2. Outward expression of accord
  3. Common intention continued at the time of the execution of the instrument
  4. By mistake instrument did not reflect common intention



The burden of the proof

Thomas Bates and Sons Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 ---> common intention contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself”:

Subjective assessment of the parties' "state of mind"

FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019] ---> . Rectification can only be given where 1) parties had antecedent contract which is not reflected in the document (objective), or 2) parties did not have antecedent contract but had outwardly manifested a shared intention that was not reflected in the document (subjective : parties must have made the SAME mistake)

Rec. for unilateral mistake

George Wimpey UK Ltd v VI Construction Ltd [2005] ---> the party must know about the other party's mistake

Agreement on clauses

Deepak Fertilisers and Petrochemical Corpn v ICI Chemicals and Polymers Ltd [1999]  ---> Where the parties have included an ‘entire agreement’ clause then the court will usually refuse to give effect to prior, supplemental, or inconsistent terms


Watford Electronics Ltd v Sanderson CFL Ltd [2001] ---> agreements which exclude liabiliy for misrepresentation (First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] ---> reasonablessness criteria)


CONTRACT TERMS AND INTERPRETATION

EXPRESS TERMS

L’Estrange v Graucob Ltd [1934] 2 KB 394 ---> When the contract is signed, all the express terms apply even if the parties did not know of them.

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] ---> when the contract is not signed but there are "onerous and unusual" terms, these terms must be brought to the defendant's attention.


See unorous and unusual terms in contracts which are signed : Interfoto expansion.

Standard term contracts

When the parties fill in the standard terms part, but contradict it in specific terms : the specific overides the general

Robertson v French (1803) ---> If there is a need to understand the meaning of the contract as a whole, the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning ---> they will have a greater effect

The battle of the forms, the last shot approach ---> the party who last put forward their terms without being rejected by the other party.

Butler Machine Tool Co Ltd v Ex-Cell-O Corpn Ltd [1979]  ---> Buyer sent back order form which did not contain price variation clause, but did have a tear off acknowledgment slip which seller duly sent back.  

IMPLIED TERMS

Marks and Spencer plc v BNP Paribas Securities Services Trust [2015] ----

  • the standard for the implied term is necessity (to make the contract work, give it buisness efficiency, was so obvious that it went without saying)
  • fairness is not enough on its own to justify implication of a term
  • Implication comes after interpretation, and construing the words that are used
  • Buisness efficiency and obviousness are alternatives



Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10: Lord Hoffmann described implication as part of the general exercise of construction, meaning that you read the contract as a whole and see what is missing that needs to make the contract reasonable (what a reasonable person would understand it to mean).

The Moorcock (1889) ---> implied term requiring D to take reasonable care to ascertain safety of berth is necessary for business efficacy

Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] ---> the exclusion clause should not be narrowly interpreted, since this is a commercial contract

Photo Production v Securior Transport [1980] ---> when the parties have equal bargaining power, and they expressly choose to take risks (e.g. liability exclusion), parties are free "to look after their own interests". And construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning are not "the place of the courts".


Irish Bank Resolution Corporation v Camden markets Holding Corp [2017] ---> terms implied which are in contradiction with express terms will not be applied.

Henry Kendall & Sons v William Lillico & Sons [1969]  ----> terms implied by prior course of dealing

North and South Trust Co v Berkeley 1971 ----> Terms implied by trade and custom must be

  1. in accordance with express terms
  2. must be reasonable
  3. must not be contrary to law
  4. must be known by the party against whom it is invoked

Shell v Lostock Garages ----> there is not implied term of fairness and non discrimination. Where buisness parties have entered into detailed drafted contracts, parties are bound to agreement even if they are prejudiciable to them.

When the two parties are not buisness parties, courts take into account broader factors (outside of the draft of the contract) ---> -   

Scally v Southern Health and Social Services Board [1992] ---> the employee cannot reasonably be expected to know of the term.

INTERPRETATION

Six leading cases in the modern approach of contractual interpretation

Judgment of Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers ---> Objective meaning of the language which the parties have chosen


Bank of Credit and Commerce International SA v Ali (no 1) [2002]  ---> no conceptual limit as what is regarded as background as long as it is relevant)


Re Sigma Finance Corp [2010] ----> Consider the contract as a whole


Wood v Capita Insurance Services [2017] ----> Consider the context of the contract


If there are two possible interpretations, favour the one that gives business common sense


Cottonex Anstalt v Patriot Spinning Mills [2014] ---> the court is not entitles to favour interpretation in line with buisness common sense


Rainy Sky SA v Kookmin Bank [2011] UKSC  ----> If the parties use unambiguous language, the courts must apply it


Is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?

PAROL EVIDENCE RULE

Goss v Lord Nugent (1833) 5 B & Ad 58 ----> no evidence of verbal exchange can be adduced to alter the written terms of the contract

Prenn v Simmonds [1971] 3 All ER 237 ---> no evidence of prior negotiations

James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] ---> subsequent conduct (Whatcham reversed - even when the contract is ambiguous)


Northrop Grumman Missions Systems Europe Ltd v BAE Systems [2015] ---> Prior negotiations can be used as evidence of fact to interpret the contract (but not the bargaining positions or the subjective intention of the party)

Exceptions to the parol evidence rule

Collateral contract : City and Westminster Properties (1934) 

Document was not intended as a complete record of contract terms :Harris v Rickett (1859) 4 H & N 1

Ilegality : Collins v Blantern (1767) 

Misrepresentation :Dobell v Stevens (1825) 

Rectification : Murray v Parker (1854) 

RECTIFICATION

Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA ---> criterias for claim for rectification for common mistake :

  1. Objective assessment of the common intention of the parties (despite the lack of an antecedent accord) ---> Chartbrook Ltd v Persimmon Homes Ltd [2009] 
  2. Outward expression of accord
  3. Common intention continued at the time of the execution of the instrument
  4. By mistake instrument did not reflect common intention



The burden of the proof

Thomas Bates and Sons Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 ---> common intention contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself”:

Subjective assessment of the parties' "state of mind"

FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019] ---> . Rectification can only be given where 1) parties had antecedent contract which is not reflected in the document (objective), or 2) parties did not have antecedent contract but had outwardly manifested a shared intention that was not reflected in the document (subjective : parties must have made the SAME mistake)

Rec. for unilateral mistake

George Wimpey UK Ltd v VI Construction Ltd [2005] ---> the party must know about the other party's mistake

Agreement on clauses

Deepak Fertilisers and Petrochemical Corpn v ICI Chemicals and Polymers Ltd [1999]  ---> Where the parties have included an ‘entire agreement’ clause then the court will usually refuse to give effect to prior, supplemental, or inconsistent terms


Watford Electronics Ltd v Sanderson CFL Ltd [2001] ---> agreements which exclude liabiliy for misrepresentation (First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] ---> reasonablessness criteria)

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