7.

The terms of the contract

Card & James' Business Law (4th edn)

Lee Roach

Publisher: Oxford University Press Print Publication Date: Apr 2016

Print ISBN-13: 9780198748380 Published online: Sep 2016
DOI: 10.1093/he/ © Lee Roach 2016
9780198748380.001.0001

7. The terms of the contract  

Chapter: (p. 158) 7. The terms of the contract

Author(s): Lee Roach

DOI: 10.1093/he/9780198748380.003.0007

● Terms and mere representations

● Express terms
● Implied terms
● The interpretation of contractual terms

Introduction

The previous two chapters focused on the pre-contractual process—

namely, who has the ability to contract, what formalities are required,
and what are the necessary ingredients for a valid contract. This
chapter discusses the actual content of a contract. Contracts are

Page 1 of 36
7. The terms of the contract

made up of terms that set out the rights and obligations of the parties
involved, and come in a number of different forms and derive from a
number of different sources. The parties may expressly agree terms,
but other terms may be imposed upon the parties by statute, the
courts, or through custom. Businesses conduct virtually all
transactions through contract, so it is vital that they appreciate the
sources from which terms can derive.

Terms can be classified in a number of different ways, but from the

point of view of determining the origin and extent of a contract’s
terms, the crucial classification that needs to be understood is the
distinction between express and implied terms.1 It is also important to
understand how the terms of a contract are interpreted by the courts
should a dispute arise. First, however, the distinction between terms
and representations needs to be discussed.

Terms and mere representations

Not every promise made during negotiations will amount to a

term: certain statements will be ‘mere puffs’ that will have no legal
standing and will never provide any form of remedy. Many advertisements
contain statements that are clearly not meant to be taken (p. 159)
seriously (for example, washing powders that clean ‘whiter than white’);
clearly, such statements are not meant to be taken literally and will not be
actionable. Other statements may, however, amount to either a term or a
mere representation, which can be actionable. The ability to distinguish
between terms and mere representations is fundamental in determining
the extent of the rights and obligations imposed under a contract. Terms
are contractual undertakings that set out the rights and obligations of the
parties, which, if not complied with, can result in an action for breach of
contract. Conversely, mere representations are simple statements made
to induce the other party to contract, but which are not intended to form
part of the contract. However, it is important to note that a representation
can become a term of a contract.2 For example, s 50(1) of the Consumer
Rights Act 2015 provides that, in a contract to supply a service to a
consumer, statements (representations) made by the trader about the
trader or the service provided will become terms of the contract if taken
into account by the consumer when deciding whether to enter into the
contract, or are taken into account by the consumer when making
decisions about the service after entering into the contract.

It is vital to determine whether a statement is a term or a mere

representation, as the following example demonstrates.

Terms and Representations

Page 2 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Tom inspects a car that Dave wishes to sell. During the inspection,
Dave says: ‘That is an excellent car. 20,000 miles on the clock, has
never broken down, and has never been involved in an accident. It’s
yours for £5,000.’ Tom accepts Dave’s offer, but later discovers that
the car’s odometer has been doctored and it has actually done 90,000
miles, and that three years previously, it was involved in a serious
accident. Two weeks after Tom purchases the car, it starts to develop
serious mechanical faults. Dave refuses to take back the car and
provide a refund.

The issue is whether the statements made by Dave regarding the

quality of the car are terms or mere representations. If they are
terms, Tom will have a valid claim for breach of contract. If they are
mere representations, Tom will have to base his claim in
misrepresentation.3 The remedies for breach of contract and
misrepresentation differ, so the distinction is vital.

misrepresentation:

a false statement that induces a party to enter into a contract

The courts will look objectively at the words and conduct of the parties in
order to determine whether the parties intended the representation to
amount to a term or not.4 The test is objective, not subjective, so the
courts are not concerned with the actual intentions of the parties, but
rather their intentions as evidenced by their words and conduct. As
Denning LJ stated, the status of a representation ‘depends on the conduct
of the parties, on their words and behaviour, rather than on their
thoughts’.5 The reason for this is that, in many cases, the parties will not
have considered the issue and so a subjective intention will not exist.6
This objectivity of the test can be seen in the following case.

(p. 160)

Thake v Maurice [1986] QB 644 (CA)

FACTS: Mr and Mrs Thake did not wish to conceive any more
children, and approached a surgeon (Maurice) to enquire about Mr
Thake having a vasectomy. Maurice explained that the procedure was
irreversible, but failed to inform the Thakes that, in a small number of
cases, the vasectomy might reverse itself naturally. The operation was
performed and, believing it to be a success, the Thakes had
unprotected sex. The procedure reversed itself naturally and, by the
time that Mrs Thake realized she was pregnant, it was too late to
Page 3 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

abort the pregnancy. The Thakes sued, alleging that it was a term of
the contract that the procedure would render Mr Thake sterile and
that Maurice had therefore breached the contract.

HELD: The Thakes believed that the statements made by Maurice

would guarantee Mr Thake’s sterility, whereas, from Maurice’s point
of view, no such promise was made. Accordingly, a subjective test was
of no use. Applying an objective test, the Court held that a reasonable
person would know that ‘the results of medical treatment are to some
extent unpredictable [and] would not have left thinking that the
defendant had given a guarantee that Mr Thake would be absolutely
sterile’.7 Accordingly, the claim for breach of contract failed, but, by
failing to warn the Thakes of the risk of natural reversal, Maurice had
acted negligently, and so the Thakes were awarded £11,177.

See Andrew Grubb, ‘Failed Sterilisation: Is a Claim in Contract or

Negligence a Guarantee of Success?’ (1986) 45 CLJ 197

To ensure consistency, the courts have identified a number of factors that

can be taken into account, but it should be noted that these factors:

cannot be said to furnish decisive tests, because it cannot be said as

a matter of law that the presence or absence of those features is
conclusive of the intention of the parties. The intention of the
parties can only be deduced from the totality of the evidence, and
no secondary principles of such a kind can be universally true.8

The importance of the statement

The more important a statement is to one of the parties, the more likely it
is to be a term. If a statement is of such importance that the representee
would not have entered into the contract had the statement not been
made, then the statement will almost certainly amount to a term.9

representee:

the party hearing the statement

Page 4 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd

[1976] 1 WLR 1078 (CA)

FACTS: J Evans & Son (‘JES’) had purchased machinery from Italy. It
engaged Andrea Merzario Ltd (‘AM’) to arrange transport, because
they had had previous dealings. As the machinery was prone to
rusting, it was always stowed in crates below deck. AM changed its
standard terms to indicate that items would be shipped in containers,
not crates. JES agreed to the change in terms, provided that the
containers were held below deck. AM’s representative gave oral
assurances that this would be the case, but this assurance was never
included in any subsequent written agreement. It transpired that the
containers containing JES’s goods were stored on deck and, owing to
rough seas, two containers fell overboard and were lost. AM argued
that it had not breached the contract, because the oral assurance
never amounted to a term. (p. 161)

HELD: JES only agreed to contract with AM on the basis that the
containers were shipped below deck. Given the importance attached
to the representative’s oral assurance, it was held by the Court of
Appeal to be a term of the contract, and JES could therefore recover
damages for breach of contract.

See JN Adams, ‘Exemption Clauses Overboard! Oral Assurance and

Written Exemptions: Which Wins?’ (1977) 40 MLR 223

The knowledge of the parties

In many contracts (especially consumer contracts), one party will rely

considerably on the knowledge of the other. Parties with specialist
knowledge are much more likely to be able to ascertain the truth of a
statement than less knowledgeable parties. Accordingly, statements made
by parties with specialist knowledge are more likely to be regarded as
terms, and statements made by those without specialist knowledge are
more likely to amount to mere representations.

Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA)10

FACTS: Williams purchased a car from Oscar Chess Ltd (‘OC’) and
traded in his old car in part-exchange. The registration book of the
old car indicated that it was a Morris 10, first registered in 1948.
Based on this, OC offered £290 part-exchange, which Williams
Page 5 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

accepted. It transpired that the car was made in 1939 (there was no
evidence that Williams knew this) and so would have been worth only
£175. OC sued for breach of contract to recover the £115 difference.

HELD: The Court of Appeal held that the statement indicating the
car’s age was a mere representation. OC had specialist knowledge,
whereas Williams did not, and so it was OC who was better placed to
discover the true age of the car.

See O Daly, ‘Innocent Misrepresentation or Term of the

Contract?’ (1957) 20 MLR 410

Statements of opinion

The general rule is that statements of opinion do not even amount to

representations,11 although they may do so where the court is of the
opinion that a reasonable man possessing all of the knowledge of the
representor could not have honestly held such an opinion.12 In limited
cases, however, it would appear that a statement of opinion can amount
to a term—namely, where the opinion states a fact that is difficult to
verify.13

representor:

the party making a statement

Statements inviting verification

If the representor invites the other party to verify a statement’s validity, it

is highly unlikely that the statement will be regarded as a term. (p. 162)

Ecay v Godfrey (1947) 80 Ll L Rep 286 (KB)

FACTS: The seller of a boat assured the buyer that it was seaworthy,
but advised a survey nonetheless. The buyer bought the boat and a
survey subsequently discovered that it was not seaworthy.

HELD: The seller’s statement advising the buyer to verify the

seaworthiness of the boat negatived any intention that he might have

Page 6 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

that such statement was to be a term. Accordingly, the statement

amounted to a representation only.

If, however, the representor specifically states that his statement can be
relied upon and that no verification is required, the courts will likely
regard such a statement as a term.

Schawel v Reade [1913] 2 IR 64 (HL)

FACTS: The claimant required a horse for stud purposes. Whilst

inspecting the defendant’s horse, the defendant said: ‘You need not
look for anything; the horse is perfectly sound. If there was anything
the matter with the horse I would tell you.’ Satisfied by this, the
claimant purchased the horse. The horse turned out to be violent and
unsuitable as a stud, and the claimant sought his money back,
alleging breach of contract.

HELD: As the defendant’s statement was designed to prevent the

claimant from discovering the truth, the House of Lords held it to be a
term and the claimant’s action succeeded.

Having discussed the distinction between terms and mere

representations, the chapter will now move on to look at the two main
types of terms, beginning with express terms.

Express terms

Terms that the parties have specifically negotiated should form

part of the contract are known as ‘express terms’, because they are
included at the express wishes of the parties. Where a contract is in
writing, identifying the express terms poses little problem and, in the
event of a dispute, all that the court is required to do is to interpret and
apply the terms as written. Problems can arise, however, where one party
contends that oral statements made were meant to amount to terms, or
where there are notices or signs that one party claims should form part of
the contract, or where there are supposed terms printed on a receipt or
ticket. In such cases, it will need to be determined exactly what terms
have been incorporated into the contract.

Incorporation of terms

In order to rely on a term, a party will need to demonstrate that the term
forms part of the contract. In order to determine this, the courts have
established a series of rules, most of which were developed in relation to
exclusion and limitation clauses.

Page 7 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

The effect of a signature

A person who signs a contract will generally be bound by the terms of

that contract, irrespective of whether or not he has actually read them, as
the following, somewhat harsh, decision demonstrates. (p. 163)

L’Estrange v Graucob Ltd [1934] 2 KB 394 (KB)

FACTS: L’Estrange purchased from Graucob a vending machine and

placed it in her café. She signed, but did not read, an order form,
which was written in standard sized print and which also contained
‘in regrettably small print’14 a term excluding liability for breach of
any implied terms. The vending machine did not work and L’Estrange
sued for breach of the implied term as to fitness for purpose.

HELD: The High Court rejected the claim. L’Estrange had signed the
contract and was bound by its terms. That she had not read the
contract and therefore did not know of the exclusion clause was
irrelevant.

The rule in L’Estrange is not absolute and the courts have mitigated its
harshness to an extent by providing for several exceptions. A successful
plea of non est factum15 will allow a party who has signed a contract to
escape that contract. More importantly, a party seeking to rely on a term
in a signed contract will be unable to do so if he misrepresented to the
other party the effect of that term.

Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1

KB 805 (CA)

FACTS: Curtis took her wedding dress (which was trimmed with
beads and sequins) for cleaning to a shop owned by Chemical
Cleaning & Dyeing Co Ltd (‘CCD’). Curtis was presented with a
receipt and asked to sign it. When she inquired why her signature
was required, the shop assistant replied that it was required in order
to exclude CCD from liability for damage to the beads and sequins. In
fact, the receipt contained a clause excluding liability for any damage
howsoever caused. The dress was returned to Curtis, but it was badly
stained. Curtis brought an action and CCD sought to rely on the
exclusion clause.

HELD: The Court of Appeal held that CCD was not protected by the
exclusion clause, because it had misrepresented the effect of the
clause.

Page 8 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Is the document contractual?

A signature will bind the signatory only if the document signed

constitutes a contractual document. Even where a document is not
signed, some or all of the terms printed on it may be incorporated into the
contract if the document is deemed to be a contractual document.

Determining whether a document is contractual or not can be difficult.

Where a term is located within a written contractual document, there is
no difficulty in determining its incorporation. However, a term may be
contained in a separate document, such as a ticket or a receipt, or may be
displayed on a sign or other notice. Such documents are unlikely to be
signed, so the rule in L’Estrange has no application. The approach of the
courts is that a document will be regarded as contractual if a reasonable
person would assume it to contain contractual terms, as the following
case demonstrates. (p. 164)

Chapelton v Barry UDC [1940] 1 KB 532 (CA)

FACTS: Barry Urban District Council hired deckchairs to the public.

A notice near the deckchairs stated that members of the public hiring
chairs should obtain a ticket from the deckchair attendant and keep it
for inspection. Chapelton hired two chairs and placed the tickets in
his pocket without reading them. The tickets contained a clause
excluding any liability for injury arising from the use of the chairs.
Chapelton’s chair was defective and, when he sat on it, it collapsed,
injuring him. The Council sought to rely on the exclusion clause.

HELD: The Court of Appeal held that the exclusion clause was
ineffective. The ticket was merely a voucher or receipt and no
reasonable person would expect it to amount to more than this.

COMMENT: It is important to remember that the status of a

document is highly dependent upon the facts of the case. Although, in
Chapelton, a receipt was not deemed to constitute a contractual
document, this does not mean that any document called a ‘receipt’
will fail to have contractual force and, based on the facts, terms
located on a receipt could become incorporated into the contract.16

The requirement of notice

A term will not be incorporated into the contract if it was not brought to
the party’s reasonable notice before or at the time that the contract was
entered into. If the term is brought to the party’s notice after the contract
is entered into, it will not form part of the contract.

Page 9 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Olley v Marlborough Court Ltd [1949] 1 KB 532 (CA)

FACTS: Olley and her husband arrived at a hotel owned by

Marlborough Court Ltd (‘MC’). They checked in, and paid for a week’s
stay in advance. They went up to their room, where a notice,
displayed on a wall, stated that MC was not liable for any items lost
or stolen. Due to the negligence of the hotel staff, Olley’s property
was stolen from the hotel room. Olley sued and MC sought to rely on
the exclusion clause.

HELD: As the contract was entered into at the checking-in desk, the
notice was communicated to Olley after the contract was entered
into. Accordingly, the exclusion clause was ineffective.

The requirement of reasonable notice is subject to two exceptions. First,

where there has been a consistent course of dealings between the parties
on the basis of documents incorporating similar terms, then, provided
that those dealings have been of a consistent nature, those terms may be
incorporated into the contract, even where express notice is given too
late.

J Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA)17

FACTS: Bradshaw had, for many years, dealt with J Spurling Ltd
(‘Spurling’), a firm of warehouseman. Bradshaw delivered eight
barrels of orange juice to Spurling to store, in return for which he
received a document acknowledging receipt of the barrels and
referring to a number (p. 165) of terms located on the rear of the
document, one of which excluded Spurling from any liability caused
by its negligence. Bradshaw did not read these terms. When
Bradshaw came to collect the barrels, they were either empty or
damaged to such an extent as to be useless. He refused to pay the
storage charges. Spurling sued and Bradshaw counterclaimed for
negligence.

HELD: The Court of Appeal held that the exclusion clause was
effective and Spurling could recover the charges, and Bradshaw’s
counterclaim failed. Although Bradshaw never read the document, he
had dealt with Spurling on such terms for many years, so should have
been aware of the exclusion clause.

COMMENT: The requirement of a consistent course of dealings

means that incorporation through prior dealings is less likely to occur
where a private party is involved, because such persons are unlikely
to have had sufficient dealings for there to be a course of dealing. For
example, in one case, the Court of Appeal held that three or four

Page 10 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

dealings over a five-year period did not establish a course of

dealing.18

The second exception is where a term is implied through trade usage or

local custom. In such cases, prior notice of the clause will not be required
and there is no need for parties within the particular trade or locality to
have dealt with each other previously; all that matters is that the usage or
custom existed when the contract was entered into and that it was used
so frequently that the party affected must, as a reasonable person in that
trade or locality, have known that it would be included in the contract.19

The requirement of notice does not require that the party actually knew
of the existence of the term prior to the contract being formed; all that is
required is that the relevant party did what was reasonable to bring the
term to the other party’s attention.20 This will depend upon the facts of
the case, but the courts have held that the more onerous or unusual the
term, the higher the degree of notice required. In one case, Denning LJ
stated: ‘[s] ome clauses I have seen would need to be printed in red ink
on the face of the document with a red hand pointing to it before the
notice could be held to be sufficient.’21 The following case provides an
example of a particularly onerous term.

Interfoto Picture Library Ltd v Stiletto Visual Programmes

Ltd [1988] QB 433 (CA)

FACTS: Interfoto Picture Library Ltd (‘Interfoto’) ran a photographic

transparency library. It loaned forty-seven transparencies to Stiletto
Visual Programmes Ltd (‘Stiletto’), which were accompanied by a
delivery note containing nine conditions, one of which stated that the
transparencies had to be returned within fourteen days of delivery
and that failure to do so would result in a £5 penalty per transparency
per day. Stiletto had not contracted with Interfoto before and did not
read the conditions. It returned the transparencies some four weeks
later, whereupon Interfoto invoiced it for £3,783. Stiletto refused to
pay and Interfoto commenced proceedings.

HELD: Given how onerous the penalty clause was, Interfoto should
have done more to bring it to Stiletto’s attention. Accordingly, the
Court held that Interfoto could not recover the £3,783, but could
recover aquantum meruit.

quantum meruit:

Page 11 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

‘as much as he has deserved’; a reasonable sum based on services

provided

See JA Holland and PA Chandler, ‘Notice of Contractual Terms’ (1988)

104 LQR 359

(p. 166) In order to prove whether a particular term should be

incorporated into the contract (or that an existing term has been stated
incorrectly), a party may need to provide evidence indicating that
additional or different terms were intended to form part of the contract.
The ability to adduce such evidence is determined by what is known as
the ‘parol evidence’ rule.

parol:

oral; not to be confused with ‘parole’, which means the early release of

a prisoner

The parol evidence rule

The parol evidence rule provides that ‘evidence cannot be admitted to

add to, vary or contradict a deed or other written document’.22 It has
been correctly pointed out that to describe this as a ‘rule’ is somewhat
misleading, because in reality, it merely establishes a presumption that a
written contractual document contains all of the terms of the contract23—
albeit a very strong one.24 Accordingly, the presumption that a written
document contains all of the terms can be rebutted if one party can show
that other terms were intended to form part of the contract.

The rule aims to promote contractual certainty, by imposing a

presumption that the only terms that can be relied on are those contained
within the written document. The rigid adherence to such a rule could,
however, result in injustice, and so the courts have established a
substantial number of exceptions; so many, in fact, that the Law
Commission stated that ‘the exceptions were so numerous and so
extensive that it might be wondered whether the rule itself had not been
largely destroyed’.25 The number of exceptions initially caused the Law
Commission to recommend abolition of the rule.26 Following consultation,
however, the Law Commission altered its position and recommended its
Page 12 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

retention—but noted, correctly, that the rule ‘no longer has either the
width or effect once attributed to it’.27 Exceptions or qualifications to the
rule include the following:

● Incompleteness If the court is of the opinion that the written

document was not intended to represent the full extent of the
agreement between the parties, then it will permit extrinsic evidence
to be adduced.28
● Implied terms The rule applies only in the case of express terms. It
does not exclude evidence being adduced that indicates that the
contract contains an implied term.29
● Invalidity The rule does not apply to any evidence that casts doubt
upon the validity of the written contract (for example, lack of
consideration or intention,30 incapacity, misrepresentation, or
mistake).31
● Rectification The written document may have failed to reflect the
true intentions of the parties. In such a case, evidence can be adduced
to indicate the party’s true intentions32 and, if accepted, the court will
rectify the contract accordingly.

rectification:

the correction by the court of an error in a written document

Two qualifications to the parol evidence rule deserve more

(p. 167)

detailed discussion—namely, the finding of a collateral contract and the

use of ‘entire agreement’ clauses.

Collateral contracts

If a party cannot establish that a particular statement is a term of the

contract, the court may hold that the statement actually creates a second
contract, known as a ‘collateral contract’. Breach of a term in a
collateral contract is just as actionable as a breach of the main contract.33

collateral:

parallel; running side by side

Birch v Paramount Estates (Liverpool) Ltd (1956) 167 EG

396 (CA)

Page 13 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

FACTS: Paramount Estates (Liverpool) Ltd (‘Paramount’) offered to

sell a house to Birch, claiming that it would be of the same quality as
the show home. Accordingly, Birch entered into an agreement, but the
contract made no mention of Paramount’s statement. The house was
not of the same quality as the show home and Birch initiated
proceedings

HELD: The Court of Appeal held that the oral statement created a
collateral contract, alongside the contract of sale, and accordingly
Birch was awarded damages.

The use of the collateral contract has been described as ‘a fudge, a cheat 
… [and an] … escape route’.34 There is little doubt that they have been
used effectively by the courts to avoid certain inconvenient principles of
law—notably, the parol evidence rule,35 with one commentator stating
that ‘[i] t could be argued that the collateral contract device largely
destroys the parol evidence rule’.36

The House of Lords has held that courts should not be too quick to find
that a collateral contract exists and that such contracts ‘must from their
very nature be rare’.37 There must be evidence adduced that objectively
indicates an intention that the statement should form a collateral contract
and not a mere representation. Failure to take a strict approach would
have ‘the effect of lessening the authority of written contracts by making
it possible to vary them by suggesting the existence of verbal collateral
agreements relating to the same subject-matter’.38

‘Entire agreement’ clauses

Parties who wish to ensure that oral statements do not become terms may
attempt to do so by inserting an ‘entire agreement’ clause, which will
normally state that the written document contains the entire terms of the
contract and that no further terms can be added. An effectively drafted
clause should prevent parol evidence being adduced and should also
prevent any oral statements from forming the basis of a collateral
contract.39

(p. 168) Implied terms

The majority of terms in a contract will usually be express, but

the ability of the parties to foresee and plan for eventualities and
contingencies is limited. Accordingly, even carefully drafted contracts will
contain gaps of some kind. If the gaps are too large, the contract will be
unenforceable on the ground of uncertainty; if the gaps are not
unacceptably substantial, they may be filled by implying terms into the
contract.

Principally, implied terms fall under one of two headings, namely (i) terms
implied in law; and (ii) terms implied in fact. The distinction between the

Page 14 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

two was set out neatly by Lord Denning, who began by stating that terms
implied by law concern:

all those relationships which are of common occurrence. Such as

the relationship of seller and buyer, owner and hirer, master and
servant, landlord and tenant … and so forth. In all those
relationships the courts have imposed obligations on one party or
the other, saying they are ‘implied terms’. These obligations are not
founded on the intention of the parties, actual or presumed, but on
more general considerations … In such relationships the problem is
not to be solved by asking what did the parties intend? … It is to be
solved by asking: has the law already defined the obligation or the
extent of it? If so, let it be followed. If not, look to see what would
be reasonable in the general run of such cases.

[Implied terms in fact concern] those cases which are not within the
first category. These are cases—not of common occurrence—in
which from the particular circumstances a term is to be implied. In
these cases the implication is based on an intention imputed to the
parties from their actual circumstances.40

The implication of terms arguably runs counter to classical contract

theory, which strongly advocates the exclusive right of the parties to
determine the content of a contract. Accordingly, if classical theory is to
be departed from, the courts will require a strong justification. The
chosen justification of the court for its ability to imply terms into
contracts has been ‘necessity’, but it can be argued that, in a number of
the cases that will be examined, the implication of a term was by no
means necessary. Consequently, a number of prominent commentators
have argued that the rationale behind the implication of terms is not
necessity, but rather the need to protect the reasonable expectations of
the parties (or the courts’ view of what the parties’ reasonable
expectations should be).41

Terms implied in fact

The court may be of the opinion that the facts of a particular case merit
the implication of a term. In such a case, the court will imply a term on
the basis that the parties meant to include the term, but for some reason
did not. Therefore, the implication of terms in fact is the court giving
recognition to the unexpressed intentions of the parties and, accordingly,
can be reconciled with classical contract theory.

The courts have established two principal tests to determine whether to

imply a term in fact, namely the ‘business efficacy’ test and the ‘officious
bystander’ test, which were established respectively in the following two
cases. (p. 169)

Page 15 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

The Moorcock (1889) LR 14 PD 64 (CA)

FACTS: The defendant owned a wharf and contracted with the

claimant permitting him to dock his ship at a jetty. The jetty extended
into the Thames and, at low tide, the ship would touch the river bed—
a fact known to both parties. At low tide, the ship was grounded on a
ridge of hard ground and was damaged. The defendant denied
liability on the ground that there was no term in the contract
guaranteeing the safety of the claimant’s ship.

HELD: The Court implied a term into the contract providing that the
defendant would take ‘reasonable care to find out that the bottom of
the river is reasonably fit for the purpose for which they agree that
their jetty should be used’.42 However, the Court stated that a term
should only be implied where it is necessary to ‘give such business
efficacy to the transaction as must have been intended at all events
by both parties who are business men’.43

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

(CA)

FACTS: In 1933, Shirlaw entered into a contract with Southern

Foundries, which provided that he would be its managing director for
ten years. In 1936, Southern Foundries was taken over by another
company, which changed Southern Foundries’ articles of association
to allow it to dismiss Shirlaw, which it did.

HELD: The Court of Appeal implied a term that Shirlaw would not be
removed in this manner before the ten-year period had expired.
MacKinnon LJ stated that the court will only imply a term if it is:

something so obvious that it goes without saying; so that, if,

while the parties were making their bargain, an officious
bystander were to suggest some express provision for it in their
agreement, they would testily suppress him with a common ‘Oh,
of course!’.44

Unfortunately, the courts have not been consistent when explaining the
relationship between the two tests. In some cases, the courts have stated
that they are ‘distinct tests with the result that a term may sometimes be
implied on the basis of one but not of the other’,45 but in other cases, the
courts have stated that both tests needed to be satisfied in order to imply
a term.46 Fortunately, in Attorney General of Belize v Belize Telecom

Page 16 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Ltd,47 Lord Hoffmann provided a pleasingly clear restatement of the

court’s approach to implying terms, stating that the court:

is concerned only to discover what the instrument means … It

follows that in every case in which it is said that some provision
ought to be implied in an instrument, the question for the court is
whether such a provision would spell out in express words what the
instrument, read against the relevant background, would
reasonably be understood to mean.48

Lord Hoffmann went on to state that tests, such as the business efficacy
and officious bystander tests, ‘are best regarded, not as a series of
independent tests, which must each (p. 170) be surmounted, but rather as
a collection of different ways in which judges have tried to express the
central idea that the proposed implied term must spell out what the
contract actually means’.49 According to Lord Clarke, Lord Hoffmann is
therefore saying that ‘the process of implication is part of the process of
construction’.50

However, the Supreme Court recently appeared to disagree with this,

with Lord Neuberger stating that the implication of terms and
interpretation of the contract are ‘different processes governed by
different rules’.51 He then went on to provide guidance on the implication
of terms:

● Implication of a term is not dependent on the actual intention of the

parties, but is instead based on what would have been agreed by
‘notional reasonable people in the position of the parties at the time at
which they were contracting’.52
● A term should not be implied into a detailed commercial contract
merely because it appears fair or because the court considers that the
parties would have agreed to it had it been suggested to them.53
Whilst these are necessary conditions for the implication of a term,
they are not sufficient per se.
● The traditional requirements of business efficacy and obviousness
are alternatives, so only one of them needs to be satisfied.54
● Necessity should be judged by reference to business efficacy or, as
Lord Sumption argued, ‘a term can only be implied if, without the
term, the contract would lack commercial or practical coherence’.55
● The judgment of Lord Hoffmann in Belize should be regarded ‘as a
characteristically inspired discussion rather than authoritative
guidance on the law of implied terms’.56

Page 17 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

From this discussion, it is clear that the courts will not quickly imply a
term into a contract and that the courts do take a strict approach when
implying terms. Further limitations include:

● A term will not be implied if it would conflict with an express term of

the contract,57 or if one party is ignorant of the facts on which the
implied term would have been based.58
● The court is reluctant to imply a term in order to resolve a ‘bitter
and contentious’ dispute.59

A duty to act in good faith

A question that has long concerned UK courts and academics is whether

UK law should recognize a general requirement to act in good faith in
relation to contractual dealings. Such a concept is common to many civil
law legal systems, but English law has, historically, not recognized the
existence of a general concept of good faith. However, contract law does
utilize the concept of good faith in specific areas (e.g. in relation to unfair
terms covered by the Consumer Rights Act 2015, discussed in Chapter 9).
Recent cases have also indicated a willingness to imply a duty of good
faith into certain commercial contracts, with the following case being
especially noteworthy. (p. 171)

Yam Seng Pte Ltd v International Trade Corp Ltd [2013]

EWHC 111 (QB)

FACTS: In January 2009, International Trade Corp Ltd (‘ITC’, an

English company) contacted Yam Seng Pte Ltd (‘YSP’, a company
based in Singapore) with an offer to be part of a distribution
agreement for certain Manchester United branded toiletries that it
had ‘recently signed’ a licence to distribute. In fact, ITC did not
obtain the licence until May 2009, which was around the same time
that YSP signed the distribution agreement. The agreement granted
YSP the exclusive right to distribute the toiletries in certain markets
for a 30-month period. Fifteen months later, YSP terminated the
contract following a series of alleged breaches by ITC, including
failing to provide the toiletries on time, providing false information,
and denying YSP the right to sell the product in certain markets
covered by the agreement. YSP then discovered the falsity of ITC’s
original January 2009 statement. YSP sued for damages for breach of
contract and misrepresentation. ITC counterclaimed that YSP did not
have the right to terminate the contract.

HELD: YSP was awarded damages for ITC’s misrepresentation. As to

the issue of termination, the High Court held that ITC had breached a
number of express terms that permitted YSP to terminate the
contract. However, Leggatt J also stated, obiter, that ITC had

Page 18 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

breached an implied duty to act in good faith. He acknowledged that

‘the general view among commentators appears to be that in English
contract law there is no legal principle of good faith of general
application’60 but added that he saw ‘no difficulty … in implying such
a duty into ordinary commercial contracts based on the presumed
intentions of the parties’.61

COMMENT: Leggatt J’s dictum that such a term is implied based on

the presumed intention of the parties clearly indicates that the duty is
implied in fact, and not in law. Indeed, he expressly stated: ‘I doubt
that English law has reached the stage … where it is ready to
recognise a requirement of good faith as a duty implied by law, even
as a default rule, into all commercial contracts.’62 However, in a case
decided a month after Yam Seng, Jackson LJ stated that ‘a duty of
good faith is implied by law as an incident of certain categories of
contract’.63

See Simon Whittaker, ‘Good Faith, Implied Terms and Commercial

Contracts’ (2013) 129 LQR 463

Unfortunately, subsequent cases have not shown consistency. In Mid

Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd,
Jackson LJ stated that ‘there is no general doctrine of “good faith” in
English contract law … If the parties wish to impose such a duty they
must do it expressly.’64 Similarly, in Hamsard 3147 Ltd v Boots UK Ltd,
Norris J stated: ‘I do not regard the decision in Yam Seng Pte … as
authority for the proposition that in commercial contracts it may be taken
to be the presumed intention of the parties that there is a general
obligation of “good faith”.”65 However, in the later case of Bristol
Groundschool Ltd v IDC Ltd and Others,66 the Court expressed support
for Yam Seng and held that the contract in question did contain an
implied duty of good faith. Clearly, an authoritative Court of Appeal or
Supreme Court ruling is required.

Terms implied in law

Terms implied in law can be split into two types, namely (i) terms implied
by the courts; and (ii) terms implied by statute.

Page 19 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

(p. 172) Terms implied by the courts

In addition to implying terms in fact, the court can also imply terms in
law, which leads us to question the difference between the two. Two main
differences can be advanced.

1. When courts imply terms in fact, they do so on the basis of the

idiosyncratic facts of the case. Accordingly, the term is what Atiyah
called an ‘individualized implied term’,67 meaning that it is a ‘one-
off’ and does not establish a precedent that such terms should be
implied in all contracts of that type in the future. Conversely, a term
implied by law will establish a precedent that such a term should be
implied in all similar contracts in the future (what Atiyah termed a
‘standardized implied term’),68 unless the term is validly excluded by,
or is inconsistent with, the contract.69
2. Terms implied in fact are implied based upon the unexpressed
intentions of the parties. Terms implied in law are not based upon
the intentions of the parties, but are obligations that are imposed
upon certain commonly arising contracts as necessary incidents of
them (for example, employment contracts, sale of goods contracts,
etc).

These two points are evidenced in the following case.

Liverpool City Council v Irwin [1977] AC 239 (HL)

FACTS: Liverpool City Council owned a dilapidated block of flats,

within which Irwin and his wife lived. The tenancy agreement
imposed a number of obligations on the Irwins, but none on the
Council. The lifts were inoperative, vandalism was rife, stair lighting
was inadequate, and the rubbish chutes were often blocked. The
Irwins therefore withheld their rent as a protest, on the ground that
the Council had breached an implied term of the contract—namely, to
maintain adequately the common areas of the building.

HELD: The House of Lords agreed with the Irwins and implied a duty
on the Council ‘to take reasonable care to keep in reasonable repair
and usability’70 the communal areas of the building. On the facts,
however, the House did not believe that the term had been breached.

COMMENT: It is clear that this was a term implied in law and not a
term implied in fact for two reasons. First, terms implied in fact are
only implied in the case in question, whereas in Liverpool, the House
stated that such a term was to be implied into all contracts involving
local authority and private lettings. Second, terms implied in fact are
based upon the imputed intentions of the parties, yet it was clear that
the Council did not intend such a term should be implied.

Page 20 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

See D McIntyre, ‘Implied Obligations of Landlords: High-rise

Blocks’ (1976) 35 CLJ 25

Whilst the House may have unanimously agreed that a term should be
implied, it could not agree on when such a term should be implied. Lord
Cross stated that a term should be implied in law where ‘in the general
run of such cases the term in question would be one which it would be
reasonable to insert’.71 However, Lords Edmund-Davies, Salmon, and
Wilberforce were of the opinion that the ‘touchstone is always necessity
and not merely reasonableness’.72 Subsequent authority has indicated
that the test of necessity has prevailed, and it is now clear that two
requirements must be fulfilled before the court will imply a term in law:
‘[T] he first requirement is that the contract in question should be a
contract of a defined type … The second requirement is that the
implication of the term should be necessary.’73

‘Contracts of a defined type’ refers to certain commonly

(p. 173)

occurring contracts (for example, employment contracts, contracts

involving the sale of goods, contracts between landlord and tenant, etc)
that are usually easy to identify. The test of ‘necessity’ is slightly more
complex. What is clear is that the test of necessity in relation to terms
implied in law is less strict than the necessity test in relation to terms
implied in fact:

[Concerning] terms implied in fact, the criterion of necessity is a

truly narrow one, having regard to the specific position of the
contracting parties themselves. Where terms implied in law are
concerned, however, the criterion of necessity is a much broader
one: the presence (or absence) of necessity is ascertained by
reference to not only the category of contract concerned but also to
broader policy factors.74

However, it is not clear what these ‘broader policy factors’ are.

Accordingly, it has been argued that, to better differentiate implied terms
in law and in fact, the court should adopt a reasonableness test when
implying terms in law,75 and there is evidence that the courts may be
starting to acknowledge this. In Crossley v Faithful & Gould,76 Dyson LJ
stated:

[R] ather than focus on the elusive concept of necessity, it is better

to recognise that, to some extent at least, the existence and scope
of standardised implied terms raise questions of reasonableness,
fairness and the balancing of competing policy considerations.77

Page 21 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Perhaps the current position has been summed up best by Atiyah who,
referring to Irwin, stated that ‘[i] t is obviously not strictly or literally
necessary to have lifts in blocks of flats ten storeys high, though it would
no doubt be exceedingly inconvenient not to have them. So “necessary”
really seems to mean “reasonably necessary”, and that must mean
“reasonably necessary having regard to the context and the price”.’78

Terms implied by statute

Terms that have been implied into contracts by the courts may eventually
be placed on a statutory footing. Notable examples of statutorily implied
terms include:

● Sections 9–11 of the Consumer Rights Act 2015 imply terms into
consumer contracts for the sale of goods providing that goods will (i)
be of satisfactory quality; (ii) be fit for a particular purpose; and (iii)
match their description.79 Section 49 implies a term into contracts for
the supply of services that the trader will perform the service with
reasonable skill and care.
● The Partnership Act 1890 implies a number of terms into the
partnership agreement that are aimed at regulating the relationship
between the partners.80

It is common for statutes implying terms to set out detailed rules

regarding which contracts will qualify and which will not. Certain terms
will only be implied into contracts between certain parties (for example,
businesses and consumers). Some implied terms may be avoided by
inserting an exclusion clause, but other implied terms are incapable of
exclusion. A statutory implied term will only be imposed within the
confines and requirements of the statute that implies it.

(p. 174) Terms implied by trade usage, previous dealings, or local

custom

Although terms implied in fact and terms implied in law constitute the
two principal sources of implied terms, there are three other notable
instances where the courts will imply a term into a contract. First, a term
may be implied because it is customary within a particular trade or
profession, as the following case demonstrates.

British Crane Hire Corporation Ltd v Ipswich Plant Hire

Ltd [1975] QB 303 (CA)

FACTS: Ipswich Plant Hire Ltd (‘IPH’) hired a crane from British
Crane Hire Corporation Ltd (‘BCHC’). After the contract was
concluded, BCHC sent out a document containing the terms (which
were based on model terms of the relevant trade association), but IPH
never signed this document. One of the terms stated that IPH would

Page 22 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

be responsible for recovering the crane if it were to sink on soft

ground, which was what happened. BCHC sought to recover the cost
of recovering the crane from IPH. IPH argued that, because it had not
agreed to the relevant term, it was not binding upon it.

HELD: The Court held that, because the terms sent out were
customary within the trade, it was implied into the contract and
BCHC could obtain damages covering the cost of recovery.

Second, the court may imply terms based on the parties’ previous
dealings, providing that such dealings are consistent,81 as occurred in the
following case.

Motours Ltd v Euroball (West Kent) Ltd [2003] EWHC 614

(QB)

FACTS: Motours and Euroball had contracted with each other

fourteen times over an eighteen-month period, based on Euroball’s
standard terms—but Motours had never read the terms. Accordingly,
Motours was unaware of a clause excluding Euroball of all liability for
consequential loss caused by breach of contract or negligence. When
problems arose, Motours initiated a claim and Euroball sought to rely
on the exclusion clause.

HELD: The High Court held that, after eighteen months, Euroball was
entitled to believe that Motours knew of the clause, and so it was
implied into the contract.82

Third, a term may be customary within a certain geographical area, as

the following case demonstrates.

Hutton v Warren (1836) 1 M & W 466

FACTS: Hutton, a tenant of a Lincolnshire farm, was given notice to

quit by Warren, his landlord. Given that Warren would benefit from
the produce planted by Hutton, Hutton argued that he should be
compensated for the money spent on purchasing seeds and also for
the hours of labour that he had invested in the farm.

HELD: Although such a term was not in the contract, it was regarded
as a local custom, and so the court implied a term requiring Warren
to pay an allowance to Hutton.

Page 23 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

The rationale behind the above implications is that, if both

(p. 175)

parties are aware of a term that is commonly included through trade

usage, etc, they must have intended it to be a term of the contract.
However, it should be noted that, for three reasons, establishing that such
terms should be implied can be difficult:

1. A term based on trade usage, etc will not be implied if it conflicts

with the express wording of the contract.83
2. A well-drafted entire agreements clause will prevent the
implication of terms based on trade usage, etc.84
3. The trade usage, etc must be certain, notorious, and reasonable.85
The requirement of notoriety is especially difficult to establish,
because it will require ‘evidence of a universal and acknowledged
practice of the market’.86

The interpretation of contractual terms

Once the terms of the contract have been identified, they will need
to be interpreted. The aim of the courts when interpreting contracts is to
ascertain and put into practice the intentions of the parties. Historically,
as a result of the parol evidence rule, the courts adopted a largely literal
approach, whereby courts would ascertain the parties’ intentions by
reference to the contract itself, giving the words used their everyday,
grammatical meaning87 and deeming extrinsic evidence inadmissible. As
with statutory interpretation, however, the courts acknowledged that a
literal approach was not always appropriate or helpful, and, in certain
situations, the court could look outside the contract itself and take into
account extrinsic factors.

This original approach was therefore principally literal, with a more

purposive secondary approach in evidence where a literal approach was
inappropriate or would produce an absurdity. In the case of Investors
Compensation Scheme Ltd v West Bromwich Building Society,88 however,
Lord Hoffmann restated the principles by which contracts are to be
interpreted and advocated a much more purposive approach.

Lord Hoffmann’s restatement

Lord Hoffmann’s restatement consists of five principles. Before

discussing these principles, we should be wary of allowing them too much
weight: how a contract is interpreted is heavily dependent on the facts of
the particular case, so much so that Lord Goff (who sat in the House of
Lords in Investors Compensation Scheme) has stated extrajudicially that
when interpreting contracts, examining previous case law would provide
little help.89

Lord Hoffmann’s first principle states that:

Page 24 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

[i] nterpretation is the ascertainment of the meaning which the

document would convey to a reasonable person having all the
background knowledge which would reasonably have been
available to the parties in the situation in which they were at the
time of the contract.90

(p. 176) This principle indicates that the courts should take an objective

approach to interpreting contracts. What the parties actually intended or

understood is irrelevant; what is important is what a reasonable person
would have understood the words to mean. More importantly, the
reasonable person can take into account ‘background knowledge’ and
Lord Hoffmann’s second principle demonstrates the breadth of such
knowledge, stating that:

[s] ubject to the requirement that [the background knowledge]

should have been reasonably available to the parties and to the
exception to be mentioned next, it includes absolutely anything
which would have affected the way in which the language of the
document would have been understood by a reasonable man.91

Lord Hoffmann defines ‘background knowledge’ extremely widely. In fact,

it could be argued that his definition is too wide and he subsequently
sought to place a limit on his second principle, stating that when he
restated the principles of interpretation, he ‘did not think it necessary to
emphasise that [he] meant anything which a reasonable man would have
regarded as relevant’92 and that he ‘was certainly not encouraging a trawl
through “background” which could not have made a reasonable person
think that the parties must have departed from conventional usage’.93

A further limit on what constitutes background information is found in

Lord Hoffmann’s third principle, which states that ‘[t] he law excludes
from the admissible background the previous negotiations of the parties
and their declarations of subjective intent’.94 Given the objective nature
of the interpretive role, this limitation is unsurprising, but excluding
evidence regarding negotiations has proven extremely divisive, with both
judges95 and academics96 arguing that there are instances in which such
evidence can be extremely valuable.

Lord Hoffmann’s first three principles indicate that the courts are no
longer confined to examining only the contract itself and that taking into
account wider background knowledge forms an essential part of their
interpretive role. This would indicate that the courts are no longer limited
to a literal approach and can instead interpret the words of the contract
in line with relevant background information—a point emphasized by the
fourth principle:

Page 25 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

The meaning which a document (or any other utterance) would

convey to a reasonable man is not the same thing as the meaning of
its words. The meaning of words is a matter of dictionaries and
grammars; the meaning of the document is what the parties using
those words against the relevant background would reasonably
have been understood to mean. The background may not merely
enable the reasonable man to choose between the possible
meanings of words which are ambiguous but even … to conclude
that the parties must, for whatever reason, have used the wrong
words or syntax.97

This principle makes absolutely clear that ‘contextualism is now king and
is to be preferred to literalism’98—a sentiment that has been echoed by
the judges themselves, who have stated that ‘[t] he tendency should
therefore generally speaking be against (p. 177) literalism’.99 The
Supreme Court has stated that where a term is ambiguous and is capable
of several different interpretations, the courts should ‘adopt the
interpretation which is most consistent with business common sense.’100
More recently, Lewison LJ stated that the court’s role is to ‘discern the
commercial intention, and the commercial consequences from the terms
of the contract itself; and that feeds in to the process of deciding whether
a particular word or phrase is in reality clear and unambiguous’.101

Principle 4 does not, however, mean that a literal interpretation of the

words used should be abandoned, because, as Lord Hoffmann’s fifth and
final principle states:

The ‘rule’ that words should be given their ‘natural and ordinary
meaning’ reflects the common sense proposition that we do not
easily accept that people have made linguistic mistakes,
particularly in formal documents. On the other hand, if one would
nevertheless conclude from the background that something must
have gone wrong with the language, the law does not require
judges to attribute to the parties an intention which they plainly
could not have had.102

This principle provides that establishing the grammatical and ordinary

meaning of the words used is the first step in determining the objective
intentions of the parties. The courts should then take into account the
relevant background information to determine whether this information
would convey to a reasonable man a different meaning from that provided
by a literal approach. Lord Hoffmann’s restatement is clearly more
focused on the commercial realities of a situation, as opposed to the
literal wording used by the parties. That this was the role of the judiciary
when interpreting contracts was recognized long before Lord Hoffmann’s
restatement, when, in 1984, Lord Goff stated: ‘[w] e are there to help
businessmen, not to hinder them: we are there to give effect to their
Page 26 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

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’.103
An approach that takes into account commercial realities provides
flexibility, but can reduce certainty. Accordingly, in the following case, the
Supreme Court clearly stated that commercial common sense will not
defeat the clear wording of a term, even if such an interpretation causes
severe hardship for one party.

Arnold v Britton and Others [2015] UKSC 36

FACTS: Arnold owned a leisure park that contained ninety-one

chalets, with each chalet being let from 1974 for a period of 99 years.
Britton and others (‘Britton’) leased twenty-one of these chalets, with
cl 3(2) of the lease providing that Britton would pay to Arnold ‘in
addition to the said rent, a proportionate part of the expenses and
outgoings incurred by [Arnold] in the repair maintenance renewal and
the provision of services hereinafter set out the yearly sum of Ninety
Pounds … for the first three years of the term hereby granted
increasing thereafter by Ten Pounds per Hundred for every
subsequent year thereof.’ Arnold contended that cl 3(2) meant that a
service charge of £90 was payable for the first three years, and this
charge would then increase by a fixed rate of 10 per cent every year,
irrespective of the amount of expense that Arnold actually (p. 178)
incurred in maintaining the park. Britton argued that the increase in
the service charge would vary based on the expenditure that Arnold
incurred, up to a maximum of 10 per cent per year.

HELD: Lord Neuberger began by setting out a number of factors to

consider when interpreting contractual terms, including:104

• The court should not invoke ‘commercial common sense’ in order

to undermine the importance of the language used in the term,
except in very unusual cases.
• The less clear the words of a term are, the more readily the court
can depart from their natural meaning.
• The mere fact that a contractual arrangement, as given its
natural meaning, has worked out badly (or even disastrously) for
one party is not a reason to depart from its natural meaning.
• Whilst commercial common sense is an important factor, the
court should be slow to reject the natural meaning of a term.
• When interpreting a provision, the court should only take into
account facts or circumstances that existed at the time the
contract was made, and which were known or reasonably available
to both parties.
• If an event occurs subsequent to the contract being made that
was plainly not contemplated by the parties, then, if it is clear

Page 27 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

what the parties would have intended, the court should give effect
to that intention.

Applying these, the Court held that Arnold’s interpretation was

correct. The wording of cl 3(2) was clear—it provided for a service
charge to be paid that would increase by 10 per cent after the first
three years. The Court admitted that this would result in ‘unattractive
consequences’,105 but any other interpretation would involve
redrafting the term.

COMMENT: There was no doubt that Britton had struck a poor

bargain. By upholding Arnold’s interpretation of cl 3(2), the £90
service charge in 1974 had increased to £2,500 at the time of the
case. By the end of the 99-year lease, the charge would be over
£550,000. Lord Carnwath (dissenting) described clauses such as cl
3(2) as ‘wretchedly conceived’106 and that Arnold’s interpretation was
‘so commercially improbable that only the clearest words would
justify the court in adopting it’.107

See Paul Clark, ‘Drafting After Arnold v Britton’ (2015) 5 Conv 373

The lesson to be learned from Arnold is that where the meaning of a term
is clear, then the courts will give effect to it and will be unlikely to allow
commercial considerations to defeat the language used. Conversely,
where the wording is unclear, commercial considerations will become
more relevant. In adopting this position, it is clear that the Supreme
Court favoured contractual certainty over commercial flexibility.

Chapter Conclusion
The layperson’s conception of a contract is a written document that
contains the totality of the terms affecting the parties. This chapter has
demonstrated that the truth is very different and that a contract can
consist of more than express terms. A spoken statement of a party can
become a term of a contract and additional terms can be implied into the
contract from a number of different sources. It is vital that businesses are
aware that they may have rights, obligations, and duties outside those
specifically negotiated with the other party. Many implied terms or terms
implied through trade usage, etc can be (p. 179) excluded via an express
provision, and businesses would do well to have a thorough
understanding of such terms, so that they can exclude them if they so
desire.

Page 28 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Key Points Summary

• When distinguishing between terms and representations, the

courts will try to ascertain the parties’ objective intentions.
Relevant factors include the importance of the statement, the
respective knowledge of the parties, and whether the representor
invited the representee to verify the statement.
• Express terms are those terms that have been specifically agreed
upon by the parties.
• The parol evidence rule states that evidence cannot be submitted
that would seek to add to, or vary, the terms of a contract, but this
rule only establishes a presumption that can be rebutted, and the
courts have established a number of exceptions and qualifications.
• Terms may be implied into a contract by the court, statute, or by
custom.
• The courts will imply terms in fact to give effect to the
unexpressed intention of the parties. Implied terms in law are not
based on the party’s intentions.
• The courts will only apply a term in law if the contract in
question falls within a number of commonly occurring contracts,
and the implication of the term is ‘necessary’. The courts have,
however, taken a generous view regarding what is necessary.
• Terms may be implied based on trade usage, previous dealings
between the parties, and local customs.
• The courts take an objective approach when interpreting
contracts and interpret words based on how a reasonable person
would understand them, taking into account relevant background
information.

Self-Test Questions
1. Define the following:
(a) representation;
(b) the parol evidence rule;
(c) collateral contract;
(d) entire agreement clause.

2. Dean is an antique dealer specializing in ancient Greek

manuscripts. He acquires a painting that he is told is a genuine
Constable. Matthew, a renowned expert in Constable paintings,
walks into Dean’s antique shop. Although Dean has little knowledge
of Constable paintings, he states to Matthew: ‘This is a genuine
Constable painting and one of his finest.’ Matthew purchases the
painting for £3 million. It transpires that the painting is a forgery. Is
Page 29 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Dean in breach of contract? What is the legal status of Dean’s

statement?
3. Why do you think the courts regard the collateral contract as such
a useful device? Back up your answer with examples from case law.
4. ‘The exceptions to the parol evidence rule are now so numerous
that the rule should be abandoned.’ Do you agree with this
assertion?
5. Explain the distinction between:
(a) express terms and implied terms;
(b) terms and representations;
(c) terms implied in fact and terms implied in law.

Further Reading
Law Commission, Law of Contract: The Parol Evidence Rule (Law Com No
154, 1986)

A clear, yet in-depth, examination of the parol evidence rule; over twenty
years old, so may not reference more modern cases or include all of the
exceptions

Lord Nicholls, ‘My Kingdom for a Horse: The Meaning of Words’ (2005)
121 LQR 577

Discusses the law’s approach to the interpretation of contracts; provides

arguments for and against allowing evidence of prior negotiations to be
adduced, and argues that such evidence can be useful

Kelvin FK Low and Kelry CF Loi, ‘The Many “Tests” for Implied Terms in
Fact: Welcome Clarity’ (2009) 125 LQR 561

Discusses the case of Attorney General of Belize v Belize Telecom Ltd, and
contends that this ‘remarkable little gem of a judgment’ provides much-
needed clarity to this area of the law

Ewan McKendrick, Contract Law: Text, Cases and Materials (6th edn,
OUP 2014) chs 8–11

A very clear and lucid account of the law relating to express and implied
terms, and their interpretation

Andrew Phang, ‘Implied Terms in English Law: Some Recent

Developments’ [1993] JBL 242

Discusses the distinction between terms implied in fact and terms implied
in law

Andrew Phang, ‘Implied Terms, Business Efficacy and the Officious

Bystander: A Modern History’ [1998] JBL 1

This article explores the ‘business efficiency’ and ‘officious bystander’

tests, and examines the relationship between them
Page 30 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

Remember to visit the Online Resource Centre at

www.oxfordtextbooks.co.uk/orc/roach4e to access the following
resources on Chapter 7, ‘The terms of the contract’: more practice
questions and answers; a glossary of key terms; multiple-choice
questions; and revision summaries. Updates to the law can be
found on Twitter by following @UKBusinessLaw.

Notes:
1. In relation to the consequences of breaching terms, the crucial
classification is between conditions, warranties, and innominate terms. As
this classification is more relevant to breach of contract, it is discussed at
p 285.

2. Accordingly, in this text, the term ‘mere representation’ is used to refer

to a representation that is not a term.

3. Breach of contract is discussed at p 282, whereas misrepresentation is

discussed at p 229.

4. Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL).

5. Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA) 375.

6. Stephen Smith, Atiyah’s Introduction to the Law of Contract (6th edn,

Clarendon Press 2005) 134.

7. [1986] QB 644 (CA) 685 (Neill LJ).

8. Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL) 50, 51 (Lord

Moulton).

9. Bannerman v White (1861) 10 CBNS 844.

10. See also Dick Bentley (Productions) Ltd v Harold Smith (Motors) Ltd
[1965] 1 WLR 623 (CA), where a statement made by a car dealer
regarding a car’s mileage was held to be a term.

11. Bisset v Wilkinson [1927] AC 177 (PC). The legal status of statements
of opinion is discussed at p 230.

12. Smith v Land and House Property Corporation (1884) 2 ChD 7 (CA)
(discussed at p 230).

13. Power v Barham (1836) 4 A & E 473; cf Jendwine v Slade (1797) 2 Esp
571.

Page 31 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

14. [1934] 2 KB 394 (KB) 405 (Maugham LJ).

15. Non est factum is discussed at p 256.

16. Parker v South Eastern Rly Co (1877) 2 CPD 416 (CA).

17. See also McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 (HL).

18. Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 (CA).

19. British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975]
QB 303 (CA).

20. Parker v South Eastern Rly Co (1877) 2 CPD 416 (CA).

21. J Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA) 466.

22. Jacobs v Batavia and General Plantations Trust Ltd [1924] 1 Ch 287
(CA) 295 (Lawrence J).

23. Elizabeth Macdonald and Ruth Atkins, Koffman and Macdonald’s Law
of Contract (8th edn, OUP 2014) 94–5.

24. Gillespie Bros & Co v Cheney, Eggar & Co [1896] 2 QB 59 (QB).

25. Law Commission, Law of Contract: The Parol Evidence Rule (Law Com
No 154, Cmnd 9700, 1986) [1.3].

26. See Law Commission, Law of Contract: The Parol Evidence Rule
(Working Paper No 70, 1976).

27. Law Commission, Law of Contract: The Parol Evidence Rule (Law Com
No 154, Cmnd 9700, 1986) [1.7].

28. J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR
1078 (CA).

29. Gillespie Bros & Co v Cheney Eggar & Co [1896] 2 QB 59 (QB).

30. Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1

WLR 379 (CA).

31. Campbell Discount Co v Gall [1961] 1 QB 431 (CA).

32. Murray v Parker (1854) 19 Beav 305.

33. This is so even if the terms of the collateral contract conflict with
those of the main contract (City and Westminster Properties (1934) Ltd v
Mudd [1959] Ch 129 (Ch)).

34. Richard Taylor and Damian Taylor, Contract Law: Directions (5th edn,
OUP 2015) 99.

Page 32 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

35. See Lord Wedderburn, ‘Collateral Contracts’ [1959] CLJ 58, 69, who
states that the collateral contract ‘eases the consciences of those who
believe that the parol evidence rule is a strict and meaningful
prohibition’.

36. Edwin Peel, Treitel on the Law of Contract (14th edn, Sweet &
Maxwell 2015) 243.

37. Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL) 47 (Lord

Moulton).

38. ibid.

39. Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611
(Ch).

40. Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 (CA) 1196.

41. See Lord Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations
of Honest Men’ (1997) 113 LQR 433, 441.

42. (1889) LR 14 PD 64 (CA) 67 (Escher MR).

43. ibid 68 (Bowen LJ).

44. [1939] 2 KB 206 (CA) 227.

45. Ashmore v Corporation of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620

(QB) 627 (Gatehouse J).

46. See e.g. Association of British Travel Agents v British Airways plc
[2000] 1 Lloyd’s Rep 169 (CA).

47. [2009] UKPC 10, [2009] 1 WLR 1988.

48. ibid [16] and [21].

49. [2009] UKPC 10, [2009] 1 WLR 1988 [27].

50. Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce
Inc (The Reborn) [2009] EWCA Civ 531, [2009] 2 Lloyd’s Rep 639 [15].

51. Marks and Spencer plc v BNP Paribas Securities Services Trust Co
(Jersey) Ltd [2015] UKSC 72 [26].

52. ibid [21].

53. ibid.

54. ibid.

55. ibid.

56. ibid [31].

Page 33 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

57. Duke of Westminster v Guild [1985] QB 688 (CA).

58. Spring v National Amalgamated Stevedores and Dockers Society

[1956] 1 WLR 585 (Ch).

59. Nicholson v Markham (1998) 75 P&CR 428 (CA) 433 (Otton LJ).

60. [2013] EWHC 111 (QB), [2013] 1 All ER (Comm) 1321 [121].

61. ibid [131].

62. ibid.

63. Mid Essex Hospital Services NHS Trust v Compass Group UK and
Ireland Ltd [2013] EWCA Civ 200, [2013] BLR 265 [105].

64. ibid.

65. [2013] EWHC 32 (Pat) [86].

66. [2014] EWHC 2145 (Ch).

67. Stephen Smith, Atiyah’s Introduction to the Law of Contract (6th edn,
Clarendon Press 2005) 157.

68. ibid 159.

69. Lynch v Thorne [1956] 1 WLR 303 (CA).

70. [1977] AC 239 (HL) 256 (Lord Wilberforce).

71. ibid 258.

72. ibid 266 (Lord Edmund-Davies).

73. El Awadi v Bank of Credit and Commerce International SA [1990] 1

QB 606 (QB) 624 (Hutchison J).

74. Andrew Phang, ‘Implied Terms in English Law: Some Recent

Developments’ [1993] JBL 242, 246.

75. ibid 245.

76. [2004] EWCA Civ 293, [2004] ICR 1615.

77. ibid [36].

78. Stephen Smith, Atiyah’s Introduction to the Law of Contract (6th edn,
OUP 2006) 161.

79. In relation to business-to-business contracts, similar terms are implied

by ss 12–15 of the Sale of Goods Act 1979.

80. The terms implied by the 1890 Act are discussed at p 490.

Page 34 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

81. It follows that, where the parties’ dealings change from one course of
dealing to the next, no term will be implied (McCutcheon v David
Macbrayne Ltd [1964] 1 WLR 125 (HL)).

82. However, the clause could not be relied upon by Euroball, because it
was deemed unreasonable under the Unfair Contract Terms Act 1977.

83. Les Affréteurs Réunis Société Anonyme v Walford [1919] AC 801 (HL).

84. Exxonmobil Sales and Supply Corporation v Texaco Limited (The

Helene Knutsen) [2003] EWHC 1964 (Comm), [2003] 2 Lloyd’s Rep 686.

85. Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421 (Ch).

86. Baker v Black Sea and Baltic General Insurance Ltd [1998] 2 All ER
833 (HL).

87. Lovell and Christmas Ltd v Wall (1911) 104 LT 85 (CA).

88. [1998] 1 WLR 896 (HL).

89. Lord Goff, ‘Commercial Contracts and the Commercial Court’ [1984]
LMCLQ 382, 385.

90. Investors Compensation Scheme Ltd v West Bromwich Building

Society [1998] 1 WLR 896 (HL) 912.

91. ibid 912–13.

92. BCCI v Ali [2001] UKHL 8, [2001] 1 AC 251 [39].

93. ibid.

94. Investors Compensation Scheme Ltd v West Bromwich Building

Society [1998] 1 WLR 896 (HL) 913.

95. Lord Nicholls, ‘My Kingdom for a Horse: The Meaning of

Words’ (2005) 121 LQR 577.

96. Gerard McMeel, ‘Prior Negotiations and Subsequent Conduct: The

Next Step Forward for Contractual Interpretation?’ (2003) 119 LQR 272.

97. Investors Compensation Scheme Ltd v West Bromwich Building

Society [1998] 1 WLR 896 (HL) 913.

98. Michael Furmston, Cheshire, Fifoot & Furmston’s Law of Contract

(16th edn, OUP 2012) 166.

99. Sirius International Insurance Co (Publ) v FAI General Insurance Ltd

[2004] UKHL 54, [2004] WLR 3251 [19] (Lord Steyn).

100. Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900
[30] (Lord Clarke).

Page 35 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021

7. The terms of the contract

101. Napier Park European Credit Opportunities Fund Ltd v

Harbourmaster Pro-Rata Clo 2 BV and Others [2014] EWCA Civ 984 [33].

102. Investors Compensation Scheme Ltd v West Bromwich Building

Society [1998] 1 WLR 896 (HL) 913.

103. Lord Goff, ‘Commercial Contracts and the Commercial Court’ [1984]
LMCLQ 382, 391.

104. [2015] UKSC 36, [2015] 2 WLR 1593 [16]–[23].

105. ibid [32] (Lord Neuberger).

106. ibid [155].

107. ibid [158].

Page 36 of 36

PRINTED FROM OXFORD LAW TROVE (www.oxfordlawtrove.com). © Oxford University Press,

2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may
print out a PDF of a single chapter of a title in Oxford Law Trove for personal use (for details
see Privacy Policy and Legal Notice).

Subscriber: City University of London; date: 04 June 2021