.png){kind=icon}
1. The law’s response to a party’s disappointed expectation from entering a contract depends on the status of the expectation. Where it arises from a term, the law will aim to secure that expectation; where it arises from a mere representation, the law will only eliminate any harm caused by reliance on it.
2. Where the parties have recorded their contract in a document the parol evidence rule prohibits the parties from going outside the document to adduce extrinsic evidence which adds to, varies, or contradicts it. However, the rule is subject to so many exceptions that it is unlikely to present an obstacle in practice (apart from mistaken identity claims after Shogun).
3. One exception is when collateral terms or collateral contracts are alleged; such terms and contracts can add to, vary, and even contradict terms contained in the contractual document, including exemption clauses; they also confer remedial advantages over representations.
4. A party is bound by their signature to a document, whether or not they have read or understood it unless: (i) non est factum; (ii) misrepresentation; (iii) rectification; (iv) or other vitiating factors can be made out; or (v) the document signed was non-contractual.
5. A party is bound by an unsigned document if: (i) it has been incorporated into the contract by notice given at or before the time of contracting; (ii) it is contained in a document intended to have contractual effect; and (iii) the level of notice was commensurate with how onerous or unusual the term sought to be enforced is.
6. A party may also be bound by an unsigned document by a consistent course of previous dealing or by the custom of the relevant trade.
7. In addition to terms expressed by the parties, terms may be implied into contracts by:
- the factual context of the particular contract (as an exercise in construing the meaning of the contract, read as a whole against the relevant background); or
- law as declared by the courts (in prescribing the necessary duties of a definable category of contractual relationship on wider considerations of fairness) by statute (eg the Sale of Goods Act 1979), or by custom (if it is certain, well known, recognised as binding, reasonable, and not contradicted by the express terms).
8. Courts have used the implied term device to restrict the exercise of discretionary power conferred by the contract, and to impose some obligations in the name of good faith in performing the contract.
9. The trend in interpreting contracts has been from a literal to a contextual approach. Investors Compensation Scheme v West Bromwich BS establishes that contractual documents should be interpreted in the way that they would be by a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time of contract formation.
10. Interpretation is about attributing meaning to persons and not merely to words. If the background and context indicate that ‘something has gone wrong with the language’, courts need not give the words their ‘natural and ordinary meaning’ and attribute to the parties an intention they plainly could not have had.
11. However, the inadmissible evidence in interpreting the contractual document is as follows: the parties’ declarations of subjective intent, their previous negotiations, and their conduct subsequent to contract formation.
12. The courts have traditionally been very hostile to the interpretation of exemption clauses. This is evident from:
- the sometimes extreme way that the contra proferentem (against the party relying on the document) construction has been applied;
- the ‘fundamental breach’ doctrine; and
- the artificial construction of clauses exempting liability for negligence and for indirect and consequential losses.
13. These techniques of hostile construction have not been overruled but, in practice, they are overtaken by the statutes controlling unreasonable exemptions and other unfair terms provided in the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.