Chapter 10 Updates to the Law

Identifying and interpreting contractual terms
Untitled Document

Chapter 10: Identifying and Interpreting Contractual Terms

10.3.3.2 Unsigned documents

p. 382 on unusual and onerous terms

The mere fact that a term is an exclusion clause does not make it onerous or unusual.  In Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA 1371, the claimant sued for losses in excess of £6 million caused by a failure of a fire suppression system supplied and installed by the defendant some ten years before.
The Court of Appeal allowed the defendant to to rely on the following clause against the claim: 

We exclude all liability, loss, damage or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by HFS for whatever reason. In the case of faulty components, we include only for the replacement, free of charge, of those defective parts. As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.

  1. This exclusion clause was held to be neither onerous nor unusual and so did not fall within the more demanding rules applicable to the incorporation of such terms into a contract. The mere fact that the clause in question is a limitation or exclusion clause does not of itself mean that it is onerous or unusual (see, for example, Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 70 (TCC), [2007] BLR 135 and Circle Freight International Ltd (t/a Mogul Air) v Medeast Gulf Exports Ltd (t/a Gulf Exports) [1988] 2 Lloyd’s Rep 427 which demonstrate that a clause which limits liability to the contract price or which excludes liability for indirect or consequential loss may be neither onerous nor unusual).  
  2. Even if the clause had been onerous or unusual, sufficient steps had been taken to draw the clause fairly and reasonably to the attention of the claimant.  It was not ‘buried away in the middle of a raft of small print’ and its potentially wide-ranging effect was expressly drawn to the claimant’s attention by virtue of the warning in the opening statement of the defendant’s standard terms of business.   Over a year had passed between the sending of the quotation to the claimant with the relevant standard terms and conditions and the decision to enter into a contract so that the claimant had had plenty of time in which to consider the terms.
  3. The Unfair Contract Terms Act 1977 had not altered the common law rules in relation to the incorporation of terms into a contract.  UCTA raises distinct issues from the incorporation of a term at common law, albeit there ‘may be some overlap in the matters that fall to be considered under each principle.’  

 

10.5.4. The limitation-exclusion division

p. 398 on the presumption that limitation clauses are valid

InMcGee Group Ltd v Galliford Try Building Ltd [2017] EWHC 87 (TCC), Coulson J stated:

[A] clause which seeks to limit the liability of one party to a commercial contract, for some or all of the claims which may be made by the other party, should generally be treated as an element of the parties’ wider allocation of benefit, risk and responsibility. No special rules apply to the construction or interpretation of such a clause although, in order to have the effect contended for by the party relying upon it, a clause limiting liability must be clear and unambiguous.

 

10.6.1 Implication in fact

p. 406, before 10.6.1.2, add-

Lord Hughes restated the general approach to implications in fact in Ali v Petroleum Company of Trinidad and Tobago [2017] 2 UKPC 2 at [7]:

It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.

In this case, Ali had to repay a living allowance loan whilst studying abroad on a scholarship from his employer when he took voluntary redundancy some 18 months after his return to work. The letter offering the loan provided that repayment would be waived if the employee returned to work for the employer for a period of five years. There was an implied term that if the employer prevented the employee without cause from serving out his five years, it would be obliged to waive repayment. However, the implied term had not been triggered because the employee voluntarily left his employment.

 

In Bou-Simon v BGC Brokers LP [2018] EWCA Civ 1525, Asplin LJ stated that:

  1. In determining whether to imply a term into a contract, the focus of the court’s attention must be on the terms of the agreement and the surrounding circumstances at the time the contract was made.   A court should not apply hindsight and seek to imply a term into a commercial contract merely because it appeared to be fair or because it is believed that the parties would have agreed to it if it had been suggested to them.  The test is one of necessity, no more and no less.
  1. A court should start by analyzing the express terms of the contract.  Only after giving a meaning to the express terms of the contract should the court consider whether to imply a term into the contract: ‘until one has determined what the parties have expressly agreed, it is difficult to decide whether a term should be implied and, if so, what the term should be.’

 

The appellant had been employed by the defendant as a broker and it had been intended that he would become a partner. He was paid £336,000 under the terms of a loan agreement which provided that it would be repaid from any partnership distributions made to the appellant, and that if the appellant ceased to be a partner any unpaid amounts would only be written off if he had served at least four years. The appellant did not become a partner and resigned within four years. The defendant claimed that the full amount of the loan became repayable pursuant to the express or implied terms of the agreement. The judge held that any notional reasonable person would have regarded the agreement as being for full repayment of the loan unless four years had been completed, and that without an implied term to that effect the contract would lack commercial or practical coherence. The Court of Appeal allowed the appeal. There was nothing uncommercial or absurd about a limited recourse loan.