Chapter 6 Outline answers to end-of-chapter questions

The terms of the contract

1. During negotiations for the purchase of 2000 PC tablets, Gamer Phones Ltd told the seller that if the software was not included there was no way they would go ahead with the purchase. The seller then stated that the software was included. Gamer Phones Ltd agreed to the sale, but the tablets were delivered without software. There is nothing in the written contract about the supply of software.

Advise Gamer Phones Ltd.

Introduce your answer by identifying the narrow issue of how oral statements can become terms of the contract. Also address your approach – that the relevant cases will be addressed and applied.

Start the main body with the need to determine if the assurance by the seller could be a term that is part of the overall contract. Explain the significance of the parol evidence rule and link it to the apparent intentions of the parties.

Apply it to the scenario – the seller will argue that the written document represents what the parties intended.

Now turn to the circumstances when an oral statement can add to the terms that have been written. The first is the recognition of collateral contracts and the example of City And Westminster Properties v Mudd [1959]. Explain it along with its basis. Also do the same for the approach of Lord Denning MR in Evans v Andrea Merzario Ltd [1976].

Next turn to the approach of Roskill LJ in Evans which was also based on intention and the importance of the statement.

Acknowledge that the terms of a written document can exclude the oral statements as terms by using an entire agreements clause (Inntrepreneur Pub Co v East Crown Ltd [2000]).

Apply these points to the position of Gamer phones and acknowledge how the position would be different if the written contract excluded oral statements.

Finally provide a conclusion on the likely liability of the seller – that if the statement forms part of a collateral contact or combined oral and written contract, then their failure to provide the software would amount to a breach. It is worth acknowledging that if the statement was not a term, Gamer Phones could rely on the law of misrepresentation on the ground that the contract was entered following reliance on the seller’s false statement.

2. Agnieszka rented two additional tanning booths for her salon for two months for £100 a month per item. She returned them to the supplier after the summer, a month late. She has been charged an extra £2400. The supplier’s website contains the terms, and in small print there is a reference to a charge of £1200 per item for every month past the return date. Advise Agnieszka as to whether the term is part of her contract.

Your introduction should identify the issues raised by the question – the rules relating to the incorporation of terms rather than the validity of the term (because of the instruction). Also refer to your approach – that the cases will be addressed and applied in turn.

The starting point of the main body is the general rule on the incorporation of terms by signature with reference to L’Estrange v Graucob [1934] and Curtis v Chemical Cleaning and Dyeing Co [1951] along with their reasoning.

Apply the principles based on the reasoning of the cases. This supports the supplier’s argument that the term is part of the contract if Agnieszka had signed a document referring to the terms on the website or if the order was online and she ticked a box agreeing to the terms. Explain the argument about the ticking of such a box being equivalent to a signature.

Now turn to the issue of onerous terms and the law relating to reasonable notice. For this, it is worth mentioning the rule from Parker v South Eastern Railway (1877); the ‘red hand’ statement by Denning LJ in Spurling v Bradshaw [1956] and importantly, its application in Interfoto Picture Library v Stiletto Visual Programmes [1988].

Apply it to the effect that if there was no ticking of a box online or a signature, then Agnieszka would rely on the cases to argue that the term was onerous and not part of the contract.

Link the principle on the incorporation of onerous terms with signed documents with reference to the comment made in Ocean Chemical Transport Inc v Exnor Craggs [2000] by Evans LJ and that of Longmore LJ in Woodeson v Credit Suisse (UK) [2018]. Contrast this limited scope for the red hand principle to apply to signed documents with the traditional approach of Fraser J in Bates v Post Office Ltd (No 3) [2019].

Apply the points made to Agnieszka’s contract. If she did sign a document with the terms or did the equivalent online, it is likely that she is bound, though her chances increase if her dispute gets to the Court of Appeal.

Finally conclude on the possible outcomes. These are based on her either signing a document; whether she did the equivalent online or if the supplier simply relies on the display of the terms on the webpage. 

3. Do the ‘business efficacy’ and ‘officious bystander’ tests amount to the same thing?

Introduce your answer by identifying the context of the tests – that these are tests developed by the courts to imply terms into contracts based on the facts. Also address your approach – that it is necessary to discuss the development of the tests and how they have been perceived.

To start the main body of your answer, explain the first test that was developed, the business efficacy test from The Moorcock (1889). Explain the case, the test and its operation. It should be observed that the term must be necessary as emphasised by Scrutton LJ in Reigate v Union Manufacturing Co [1918].

Now detail the officious bystander test introduced in Shirlaw v Southern Foundries [1939]. Again, explain the basis of the test and the way MacKinnon LJ viewed the business efficacy test.

You can now address the points that the tests have in common – necessity, the use of the surrounding facts to reflect the apparent intentions of the parties and their role as ad hoc gap fillers that only apply to the contract being disputed as opposed to all contracts.

At this stage, it is useful to briefly explain the approach of Lord Hoffman in Attorney-General of Belize v Belize Telecom [2009] that viewed the tests as a matter of contract interpretation and how this was rejected by Lord Neuberger of the Supreme Court in Marks and Spencer v BNP Paribas Securities Services Trust Company [2015]. Crucially, explain the six points of guidance from Lord Neuberger that are applicable to the application of the tests.

Finally provide a conclusion that relates to the question. This could highlight the necessity for the business efficacy test and the obviousness of the officious bystander test to conclude that they achieve the same thing but are technically different. 

4. Evaluate the extent to which the principles of interpretation introduced by Lord Hoffman in the Investors Compensation Scheme Case represent an improvement.

Your introduction could identify the practical reasons why contracts need to be interpreted. Also address your approach which is to explain the traditional position before detailing the approach introduced by Lord Hoffman and the developments that followed in order to conclude on the extent to which the Lord Hoffman’s approach represents an improvement.

Your main body can start with the traditional ‘four corners’ approach that was authoritatively recognised by Cozens-Hardy MR in Lovell and Christmas Ltd v Wall (1911).

Now commence some evaluation by providing the criticism and limits of this approach but also its basis.

Next, explain the approach introduced by Lord Hoffman in the Investors Compensation Scheme Case [1998]. This requires detail of the case including the term at issue and the result. Crucially, reference should be made to a summary of the principles.

You are now in a position to continue with your evaluation. Explain the merits of the approach in terms of reflecting the apparent intentions of the parties on the facts.

This can be followed by a reference to the dissenting view and reasons delivered by Lord Lloyd. Also address the potential uncertainty arising from the new approach and the problem of determining ‘commercial common sense’ highlighted by Neuberger LJ in Skanska Rashleigh Weatherfoil v Somerfield Stores [2006]. Also, the fact that it is now the most cited contract case of all time which indicates the increased litigation resulting from it.

Continue by addressing the uncertainty arising from the applicability of the new principles with reference to Rainy Sky v Kookmin Bank [2011]. Importantly, detail the significance of Arnold v Britton [2015] with the additional guidance from Lord Neuberger, the reasons for it and its limiting effect on the contextual approach.

At this stage explain the significance of the guidance from Lord Hodge in Wood v Capita Insurance Services [2017] UKSC 24. It is useful to detail the aim of the guidance.

Finally conclude the evaluation with reference to the improved position represented by the modern contextual approach but recognise that at the time of ICS, the new approach resulted in uncertainty, uncertainty that has been addressed in the recent cases.