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NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL

AB1301 - BUSINESS LAW


AUG 2015

Seminar 6: Contents of Contract (Terms) II

Key Learning Points:


Understanding of
Parol Evidence Rule
Exemption and Limitation of Damages Clauses
Common Law Restrictions on Exemption and Limitation Clauses
Statutory Restrictions under UCTA

Contents

A. Incorporation of Terms
B. Construction
C. Unfair Contract Terms Act

A. Incorporation of terms

The concept of incorporation deals with how printed terms become part of the
contract, and thus terms of the contract.
(a) Signed documents: LEstrange v Graucob (1934) a person who signs a
document which contains contractual terms is normally bound by them even
though he has not read them, and even though he is ignorant of their precise
legal effect.

(b) Unsigned documents notices, receipts, tickets, etc. These documents will only
have contractual effect (that is, become part of the contract) when both these
requirements are met:

(i) The terms are brought to the notice of the contracting party before or at
the time that the contract is made (contemporaneity rule)

See Olley v Marlborough ((1949)


(ii) The party relying on the terms (excluder) has taken reasonable steps to
bring the terms to the notice of the other party (excludee): Thornton v
Shoe Lane Parking Ltd (1971); Parker v South-Eastern Railway Co
(1877).

B. Construction
The concept of construction deals with what the words in a document or agreement
mean, and how does one reasonably construe or interpret the meaning of the words
used. This will have implications on the effectiveness of an exclusion clause and the
extent that the clause will exclude, restrict or limit a contracting partys liability in the
event of his breach of contract.

Contra proferentum
This common law rule of construction means that any ambiguity in the words used in
an exclusion clause is interpreted strictly against the maker (excluder) of the
exclusion clause.

Main purpose rule


An exclusion clause which purports to defeat the main purpose of a contract is
generally ineffective unless, on a true construction of the clause, the parties had
intended by the use of clear and unambiguous words to exclude liability
notwithstanding a fundamental breach of contract: Photo Production Ltd v Securicor
(1980) UKSC.

Fraud or misrepresentation
A party who misrepresents (albeit innocently) the contents or effect of a clause
inserted by him into a contract cannot rely on the clause in the face of his
misrepresentation: see Curtis v Chemical Cleaning and Dyeing Co (1951).

C. Unfair Contract Terms Act


Singapore adopted* the UCTA (English in origin) as part of her laws (subject to
modifications to suit local conditions). The framework of the UCTA is to generally
render exclusion clauses invalid altogether (section 2(1) exclusion of liability for
death or personal injury) or invalid except in so far as the term or notice satisfies the
requirement of reasonableness: see section 2(2) term or notice and section 3(1)
contract term.
* Application of English Law Act, section 4(1)(a), First Schedule, Part II, item 9.

The Act generally applies only to business liability: see section 1(3). This means that
the Act does not cover exclusion clauses in contracts between one consumer and
another consumer.

The burden of proving that the clause is reasonable (except exclusion for death or
personal injury which cannot be excluded altogether) lies on the party relying on the
exclusion clause (excluder): see section 11(5).

The exclusion of liability arising under contract only applies as between dealer and
consumer (B2C) or, if the other party is a dealer (B2B) as well, then on the excluders
written standard terms of business.

The reasonableness test


The paramount test is enshrined in section 11(1) which provides that in relation to a contract
term, the requirement of reasonableness is that the term shall have been a fair and
reasonable one to be included having regard to the circumstances which were, or ought
reasonably to have been, known to or in the contemplation of the parties when the contract
was made.
This essentially means that the court will consider all the relevant facts of the case at the
time of the making of the contract, whether knowledge of the circumstances are actual or
constructive (ought reasonably to have been known). This is extremely wide and essentially
allows the court, in determining the reasonableness of the exclusion clause, to consider
everything that is relevant and important in helping the court to decide.

Although the Second Schedule (Guidelines for application of reasonableness test) is


expressly limited to sale of goods and hire purchase transactions, judges have applied the
guidelines by analogy (where relevant) to other situations where the question of
reasonableness arises under the Act. It is to be noted that the Guidelines are, as the name
suggests, only helpful aids (where relevant) in helping the judge decide the notion or
reasonableness in the context of the particular case; they should not be seen to be
exhaustive but merely illustrative of some of the important considerations to take account of
when determining the question of reasonableness.

Assoc Prof Dennis Ong


August 2015