Offer negotiation Offers or invitations to ‘treat’ Acceptance 4

3. Implied in Law (generic terms always implied in particular types of contract)

• 
  Liverpool City Council v. Irwin [1977] AC: Council flats had defective lifts and rubbish chutes. No express terms bound LL though it was necessary he have some obligation ‘to take reasonable care to keep in reasonable repair and usability’. Essential to make contract work
  
  • 
    decision by court to imply term in one-off contract lays down general rule for all - Lord Cross
    
  • 
    Wilberforce: business efficacy or officious bystander test would not result in term’s implication, but asking what the relationship required would. very common where there is established usage. courts spell out what both parties would unhesitatingly agree to be part of the bargain.
    
• 
  Byrne v Australian Airlines (1995) CLR: Imply where necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. Implied term not to steal baggage
  

4. ‘Universal Terms’ and Good Faith? (universal)

• 
  Mackay v Dick (1881), L Blackburn: If both parties agree that something should be done and cannot effectively be done unless both concur, construction of contract is that each agrees to do all necessary for the carrying out of that thing, even though no express words. 
  
• 
  Secured Income v St Martins (1979): Implied term to cooperate in performance? Party agree by implication to do all such things as are necessary to enable other party to have the benefit of the contract
  
• 
  ACT Cross Country Club v Cundy [2010] FCA 782: application of construction and implied term approach
  
• 
  Implied term of good faith in performance
  
  • 
    Renard: Duty of good faith and fair dealing, or to interpret powers to be exercised reasonably
    
  • 
    Hughes v. Airservices (1997) ALR: Duty to deal fairly in performance of contracts (tender process)
    
  • 
    Burger King v Hungry Jacks: engineered breach against implied obligation of good faith.
    
• 
  Royal Botanic Gardens v South Sydney [2002] ALR: status of good faith in performance is an open issue. Cant imply good faith term if contradicts express term.
  
• 
  ACL s20-22 unconscionable conduct in performance and unfair terms
  

B. Terms Implied By Statute

1. Sale of Goods Act 1896 (Qld) (general application to sale between businesses)

• 
  Title: s15: right to sell a), possess as B b) and be free of charge to 3^rd party c)
  
  • 
    Nibblet v. Confectioners' Materials [1921] Also includes intellectual property rights
    
• 
  Description: s16 goods shall correspond with the description
  
  • 
    Grant v. Australian Knitting Mills [1936]: general description
    
  • 
    Ashington Piggeries v. Hill [1972] AC: identity rather than quality
    
• 
  Quality or Fitness for Purpose s17: default is buyer beware, no implied term unless a) particular purpose stated, c) bought on description (must be of merchantable quality)
  
  • 
    Grant: Fitness: strict liability. Quality: clothing not merchantable, couldn't be worn
    
• 
  s.56 parties free to exclude (warranties not conditions) under that Act. (TPA and CCA don't allow)
  

2. TPA supplemented SOGA covering lease, hire and services. regularly amended, focus: national contract regulation between businesses & consumers. Div 1 unfair practises. Div 2 ‘conditions and warranties’– implied terms: ss 68 clauses excluding implied terms void, 69: title, 70: description, 71: fitness for purpose or merchantability, 74: supply of services

3. CCA 2010 TPA amended and renamed to solve federalism problems, Div 2 significantly changed: provisions grouped together, replaced implied term concept (now stand alone remedy), clearer (merchantability replaced with acceptability), defined remedies (major and minor), prevented clauses excluding it

• 
  Statutory Guarantees CCA 2010 Part 3-2, Division 1: for supply goods
  
  • 
    *51 title (ownership rights pass on purchase, unless this was not intent or in hire/lease agreement)
    
  • 
    52 undisturbed possession (no further charges) 53 undisclosed securities etc. (unless disclosed)
    
  • 
    *54 acceptable quality (fit for all purposes commonly supplied, acceptable in appearance and finish, free from defects, safe and durable. reasonable consumer acquainted with condition would regard as acceptable with regard to nature, price, statements made on packaging, representations made by suppliers and manufacturers. not applicable if attentions was drawn to unacceptability, consumer causes it to become of unacceptable quality or examines before purchase)
    
  • 
    55 fitness for any disclosed purpose etc. (if you explain why you want it and seller can be trusted)
    
  • 
    56 supply of goods by description (verbal or writing)
    
  • 
    57 supply of goods by sample or demonstration model
    
  • 
    *58 repairs and spare parts (Guarantee manufacturer will take reasonable action to ensure facilities for repair are reasonably available for a reasonable period, unless reasonable notice given)
    
  • 
    *59 express warranties (verbal or written)
    
• 
  Statutory guaranties to replace implied conditions and warranties - services
  
  • 
    *60 due care and skill:
    
  • 
    *61 fitness for a particular purpose etc (if consumer makes known a particular purpose or result there is a guarantee unless it was not relied on or unreasonable to rely on judgement of supplier)
    
  • 
    62 reasonable time for supply
    
  • 
    63 services to which subdivision does not apply: a) transportation for business or b) insurance
    
• 
  *64 cant contract out (aimed at exclusion clauses)
  
• 
  ACL consumer if (s3) definition varies
  
  • 
    Price did not exceed prescribed amount [$40,000], OR were of a kind ordinarily acquired for personal domestic use or consumption, OR Vehicle/trailer acquired for transport use on public roads AND P did not acquire for re-supply
    
• 
  CCA 2010 Chapter 5-4 S.259 sets out remedies relating to guarantees. 246 punative orders (corrective ads), 232 injuctions (stop ads), 236 damages.
  
• 
  “Major failures”: Consumer can reject, or recover compensation s260 if goods: wouldn’t been acquired if failure known, depart from description, substantially unfit for purpose or are unfit for disclosed purpose.
  
• 
  Nonmajor: ask supplier to remedy failure in reasonable time, self remedy cost, notify supplier of rejection
  

Interpretation of Terms and Exemption Clauses

Begin with natural and ordinary meaning, then read contract as a whole - in context of matrix of facts and resolve ambiguities if possible

1. Finding ‘Intention’

• 
  Pacific Carriers: “it is not the subjective beliefs that matter but what each party by words and conduct would have led a reasonable person in the position of the other party to believe.” Statements are subjective
  
• 
  *Franklins v Metcash [2009] NSWCA, Allsop P: HC clear on objective approach
  

2. Extrinsic Evidence

• 
  Prenn v Symmonds [1971] ER: buys shares giving right to acquire % subject to “aggregate profits” Dispute: “Profits” of PC alone, or including subsidiaries. S wanted to refer to negotiations. Held: Can look at genesis and objective aim, can’t refer to negotiations (drafts and intention changes), final doc records consensus (Metcash Giles JA: Contract has life after negotiators leave, accepted meaning corresponding with commercial good sense, “Time has passed when agreements were isolated from matrix of facts and interpreted on linguistics”
  
• 
  Codelfa: Cant consider later conduct (slippery slope), prior negotiations or intent
  
• 
  County Securities v Challenger [2008] NSWCA: conduct possible to identify terms not interpret them
  
• 
  *Franklins v Metcash (2009) ALR: conduct cant be used to prove what parties meant by terms
  
• 
  Bayley: negotiations and post contract conduct should be admitted. exclusion creates injustice. Wont increase costs. Estoppel and rectification aren’t enough (higher threshold, inefficient and creates abnormalities).
  

3. Factual Matrix

• 
  Reardon Smith v. Hansen Tangen [1976] WLR: Currently being built in 'Yard 354 Osaka'. Identical ship built in another yard. Refused to accept. Can use objective background facts  Court must put itself in “factual matrix”
  
• 
  Codelfa: “Must be susceptible to more than one meaning’  Mason J thought this was over-cautious.
  
• 
  Royal Botanic Gardens v South Sydney [2002] HC: Follows Mason, but finds ambiguity. clause provided rental MAY be varied in regard to additional costs (lists costs). Joint majority found ambiguity: limitation was unclear. invented ambiguity to use surrounding circumstances AND prior negotiations.
  
• 
  Pacific Carrier: Wider view: “….requires consideration not only of the text of the docs but also the surrounding circumstances known to the parties, and the purpose and object of the transaction”
  
  • 
    ‘subjective intentions not important. letters were intended to be given to carrier who had no idea of subjective intent’
    
• 
  *Franklins v Metcash (2009): Not necessary to find an ambiguity but has to be relevant and probative
  
• 
  HC probably still follow Codelfa: Words construed according to their “plain”, “ordinary” or “natural” meaning
  
  • 
    Byrnes v Kendle (2011) CLR: actual state of mind relevant only for non est factum or duress
    
  • 
    Western Export v Jireh (2011) ALR: court is not justified in disregarding unambiguous language simply because the contract would have a more commercial operation
    

4. New Approaches to Interpretation?

• 
  Investors’ Compensation v. West Bromwich [1998] L Hoffmann summarises developments:
  

• 
  Ascertain meaning of doc to reasonable person with background knowledge of parties at time
  
• 
  Background is “factual matrix”: “anything which would have affected the way in which the language of the doc would have been understood by a reasonable person”
  
• 
  Law excludes previous negotiations and subjective intent (except for rectification)
  
• 
  Meaning of words (dictionary) v. meaning of doc (what parties reasonably understood them to mean)
  
• 
  Natural and ordinary meaning is commonsense view that people do not make linguistic mistakes, especially in formal docs. But background may indicate wrong language was used.
  

Absurdity or Multiple interpretations

• 
  The Antaios [1984] ER: Use natural (plain) and ordinary (literal) meaning unless absurd. Owner can withdraw hired vessel “on any breach”. Literal = trivial breach. good commercial sense  meant repudiatory
  
  • 
    L Diplock: Reject “detailed semantic and syntactical analysis of words in commercial contract if leads to result which flouts business common sense”
    
• 
  ABC v Australian Performing Rights Association [1973]: Not court function to attribute to the parties an intention to do something which their express words do not provide (Gibbs J). But if 2 constructions should choose the one isn’t unreasonable, inconvenient or unjust, even if not the most obvious or most grammatically accurate
  
• 
  The Karen Oltman [1976]: Option to redeliver “after 12 months trading subject 3 months notice”. Q. after 9 months only, or at any time after 12 months (eg 15 months). Previous telexes supported former
  

Commercial Interpretation: Queensland CA Summary

• 
  *Elderslie Property Investments v Dunn  [2008] QCA: Commercial business/sensible result test
  

1. 
   What would reasonable person have understood using surrounding circumstances known to parties (Investors Compensation v West Bromwich)
   
2. 
   Commercial contracts must be construed in interest of making commercial sense (McCann v Switzerland Insurance)
   
3. 
   The more unreasonable the result the more unlikely it was intent (Wickman v Schuler L Reid: unless intent made abundantly clear)
   
4. 
   If detailed semantic and syntactical analysis flouts commonsense they must be made to yield to business common sense (Antaios v Salen, Diplock)
   

• 
  The Starsin [2004] AC: object to “ascertain and give effect to the intentions of the contracting parties”.
  
• 
  Toll: intentions, to be determined objectively, are 'what a reasonable person would have understood words to mean. 'to ascertain that “requires consideration of surrounding circumstances and purpose.”
  
  • 
    Certainty: oral agreements can be disputable, time consuming, expensive and problematic.
    
  • 
    Contradicts classical or rights based theories that conceive contracts as self-imposed obligations
    
• 
  Fitzgerald v Masters (1956) CLR: court read the word "inconsistent" as meaning the precise opposite. Dixon CJ and Fullagar J: “Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency”
  

Correction of Mistakes – limits on courts (rectification and construction)

• 
  *Franklins v Metcash: rectification shouldn't do more than rewrite the contract to minimum extent necessary to express common intention of parties
  
• 
  Elderslie: May be unnecessary to rectify if achieve same result by construction
  
• 
  Chartbrook v Persimmon [2009] AC: Read literally owed millions with regard to commercial purpose only 1000’s. L Hoffmann: to correct by construction must be clear mistake and clear cure for correction. interpretation in accordance with ordinary rules of syntax makes no commercial sense. “What a reasonable person having all background knowledge available would have understood”. (contrary to HC principles, ABC)
  

Specific “Rules” of Interpretation (not strict)

• 
  express mention of one thing, excludes other similar things Hare v Horton (1833)]: Sale of factory and houses (along with fixtures in houses). Held: sale excluded fixtures in factory.
  
• 
  “Of a like kind” Tillman v Knutsford: exclusion for “war, disturbance or any other cause” referred to hostilities
  
• 
  Give interpretation to make contract valid not void for uncertainty (Fitzgerald v Masters)
  
• 
  generally give effect to additions where there is conflict with preprinted clauses
  
  • 
    The Starsin [2004]: Good Drafting: Include “conflicts” clause. Giving priority to different parts of contract
    
  • 
    Glyn v. Margetson [1893] AC: Interpret contract to avoid defeating main purpose and intent of contract