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Terms: Did someone unreasonably tie me down? Can I get out?

The Parol Evidence Rule excludes evidence of:

Oral variations

Subjective intention of the parties

Prior negotiations

Subsequent conduct

Types of Evidence

Agreement supersedes negotiations

The parol evidence rule presumes that the negotiations that took place between the parties were superseded by the signing of the agreement.

Nemeth v Bayswater Road Pty Ltd (1988) 2 QDR 406

Plaintiff subsequently sued for additional hire charges that it claimed were due under an oral contract.

There was a term, which stated that the written contract was the whole contract. The Court held that oral evidence by Nemeth was inadmissible, as they assumed that all negotiations were super-seded by the written contract.

Subsequent Conduct

Evidence of any subsequent conduct by the party (or parties) cannot be used for the purpose of construing the terms of a written contract retrospectively.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (182) 149 CLR 337

It was held that evidence of subsequent conduct was inadmissible

However, evidence of discussions between the parties to a contract prior to signature was admissible for the purpose of establishing the common understanding of the parties in relation to a matter of fact.

The Factual Matrix

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989

Wilberforce J stated that contracts are not made in a vacuum. It was held that despite the parol evidence rule, evidence about surrounding circumstances can be heard, as the Court must put itself in thought in the same factual matrix as the parties when they made the contract.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (182) 149 CLR 337

The Court allowed some evidence about the common understanding between the parties. That is, both parties believed that Codelfa was immune against an injunction for noise. They believed that the residents couldn’t succeed, and thus, there was no clause regarding that eventuality.

Exceptions to the Parol Evidence Rule

1.            Custom/Trade Usage

British Crane v Ipswich Plant Hire [1975] QB 303

The contract was for the hire of machinery between two hire companies. The defendant after hiring machinery brought it back damaged. The plaintiff argued that as it is an implied term due to custom, that when equipment is borrowed, it is returned in a similar condition to that which it was borrowed in.

The defendant argued that this was not admissible, as it fell under the parol evidence rule.

Court held that the parol evidence rule is only a rule of thumb, and not a rule of law, and further, when implying a term due to custom or trade usage, there is an exception to this rule.

Hutton v Hutton (1836) (Ex)

The plaintiff leased a property and disputed a notice to vacate on the basis that the defendant had failed to comply with certain local customs and practices, in particular a rebate for farm work done in the previous year.

The court held that the issue should be read in light of established custom.

The party seeking to imply the local custom bears the burden of proof.

2.            Condition Precedent

The operation of the contract is to be suspended until a specific event takes place.

Pym v Campbell (1856) 119 ER 903

Pym was an inventor and there was a written contract between him and the defendant, where Pym was to sell his invention to the defendant. There was an oral contract between the parties that the defendant would only buy it is an engineer examined it and approved it.

The engineer, after examining it, did not approve it and thus the defendant did not buy the product. The plaintiff sued and the Court held that this evidence was admissible as that was a condition precedent, and this as an exception to the parol evidence rule.

3.            Contract was not wholly in writing

State Rail Authority of New South Wales v Health Outdoor Pty Ltd (1986) 7 NSWLR 170

The Court held that parol evidence is admissible to demonstrate that the contract was partly oral, and partly in writing.

McHugh stated that the existence of writing provides ‘an evidentiary foundation for a conclusion that [the] agreement is wholly in writing.’

Therefore, the party seeking to rebut this conclusion bears the burden of proving that the contract was not wholly in writing.

Van Den Esschert v Chappell [1960] WAR 114

The plaintiff asked the defendant, before buying a house, whether there were any white ants in the house. The defendant re-assured him that there were none. There was no mention of this in the written contract.

The plaintiff provided evidence to convince the court that the contract was partly oral and partly written.

4.            Clarify Ambiguity

Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan and Co (1918) 26 CLR 410

It was held that an ambiguity could be patent or latent. A patent ambiguity is where something is left out, in which parol evidence needs to be brought to demonstrate the true intention of the parties. A latent ambiguity is where the words used can have more than one meaning. In this situation, it was held that parol evidence is admissible to prove which of the available meanings were intended by the parties.

5.            Prove Parties to a Contract

Gilberto v Kenny (1983) 48 ALR 620

There was a written agreement to sell land. Mrs Kenny signed the contract and the court held that oral evidence was admissible to show that Mrs Kenny signed for herself as well as an agent for her husband.

Oral evidence must also be given to identify the relationship of a party, or the capacity in which a party contracted (that is, as agent or principal.)

6.            To prove an error

That the actual agreement made by the parties has been inaccurately expressed in the written contract. Equity may allow a contract to be rectified so that it represents the true intention of the parties.

Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan and Co (1918) 26 CLR 410

Higgins J stated that the aim of rectification is to remake the written contract ‘to accord with what the parties actually agreed to, or with what one party intended and the other party knew the first intended.’

Escanda v Burgess (1984) 2 NSWLR 139

The contract was written in such a way that the price put into the written contract was lower than the actual price, for tax evasion purposes.

Parol evidence admitted to show that the written contract was a sham.

Yarromba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398

7.            Collateral Contracts

Even if a statement is held to be a mere representation and not a term of a contract, the ‘innocent’ party may be able to argue that the representation formed a separate, collateral contract, which was subsequently breached.

Heilbut Symons v Buckleton [1913] AC 30

It is where the consideration for the contract is a promise to enter into the main contract. If a collateral contract is found to exist, it will be enforceable regardless of whether the main contract was valid or enforceable.

In order to show that a collateral contract exists, it must be proven that:

It was intended as a promise, and intended to induce the parties to enter into the main contract

NOT be inconsistent with the main contract

Has separate consideration

JJ Savage and Sons Pty Ltd v Blakney (1970) 119 CLR 435

Blakney was looking to buy a motor cruiser and asked the vendor for some advice on what sort of engine he should buy for it. The vendor therefore sent him a letter recommending a particular engine. He then bought the cruiser and put in the engine. However it didn’t run properly.

The court held that it was only a letter of recommendation and estimated the power of the engine. Therefore the statement was a representation and not a promise or a term.

The court refused to infer a collateral contract because negotiations on the main contract were incomplete at the time and will only form a collateral contract if it is promissory and not merely representational.

Hoyts Pty Limited v Spencer (1919) 27 CLR 133

Spencer sub-leased premises to Hoyts for a four-year term. The sub-lease permitted the defendant to terminate the sub-lease at any time by giving the plaintiff four weeks written notice. Hoyts relied on this and gave notice.

Spencer argued that the termination was in breach of a collateral contract between the parties that the defendant would not take advantage of the termination provision unless he was served with such a notice under the head lease.

The court held that this was inconsistent with the main contract.

Hercules Motors v Schubert (1953) 53 SR (NSW) 301

It was held that a collateral contract must be formed at or before the main contract.

If formed after the main contract then it cannot be held that the collateral contract is the consideration, as past consideration is not good consideration.

The remedy for the breach of a collateral contract is damages. The innocent party is unable to rescind the main contract even if it is defective.

Classification of Terms

If a statement does become part of a contract then it is necessary to determine the importance of that term. The remedy available is dependant upon what type of term it is.

The main types are:



Intermediate/Innominate terms

Or terms can be classified as definitional or procedural terms.


A condition is an essential term of the contract.

Bettini v Gye (1876) 1 QBD 183

Bettini entered into a service contract with the defendant to sing in London for specified dates. The defendant subsequently refused to honour the contract because the plaintiff arrived four days late to rehearsal due to illness.

The court held that the late arrival was not a breach of a condition because it was a long-term contract that included some performances needing no rehearsals.

Blackburn J defined it as going ‘to the root of the matter, so that failure to perform it would render the performance of the rest of the contract substantially different.’

Poussard v Spiers and Pond (1876)

Poussard was contracted by the defendant to sing in an Opera for specified dates. She was ill just before the opening night and a week passed before she was well enough to sing again. The defendants no longer required her for the role and she sued for breach.

The courts held that as the illness was on an uncertain nature, the only alternatives open for the defendants were either to postpone the Opera and suffer financial loss or engage another singer (which occurred), thus it was reasonable to permanently replace her.

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

There was a contract that Tramways would display advertisement boards for Luna Park for 8 hours a day throughout the season, and this would be for a minimum period of 52 weeks. However, Luna Park argued that the advertisements were not displayed for 8 hours a day.

It was held by Jordan CJ that the “test of essentiality is whether…the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise.”

The court held that Tramways had breached the condition, as Luna Park would not have entered ‘but for’ that condition.

The breach of a condition is a serious matter and may entitle the innocent party to discharge the contract and its obligations and in addition, also receive damages.

Condition Precedent

This is an external event that must occur before either a contract comes into existence or the performance under a contract is required.

George v Roach [1947] 67 CLR 253

A vendor agrees to sell his newsagency to the defendant and the contract contained a term that the price should be determined by an independent valuer who was named. The valuer refused to provide the valuation and therefore the vendor does not sell and the purchaser sues.

The court held that the necessity for the named valuer to provide the valuation was a condition precedent to the very existence of the contract. Therefore no contract came into existence.

Condition Subsequent

This is an external event which, when it occurs, brings the contract to an end.

(Example: Refund statement)


A warranty is a non-essential term of a contract.

Bettini v Gye (1876) 1 QBD 183

Singing contract where Bettini agreed to sing in certain concerts and operas in Great Britain and Ireland between 30 March and 13 July. However was unable to attend to rehearsals due to an illness.

This was held as a breach of warranty and not a condition as rehearsals before the commencement of the engagement was not vital.

Associated Newspapers v Bancks (1951) 83 CLR 322

Bancks entered into a contract with a newspaper to provide cartoons, which the newspaper agreed to place on the front page of the comic section. The newspaper repeatedly failed to do this and placed it on the third page.

This was considered a breach of a condition and Bancks was able to rescind the contract.

A breach of a warranty renders a contract different, but not substantially different. As a breach of a warranty is of lesser importance, it only allows the innocent party to sue for damages. It does not permit the innocent party to rescind the contract. However, if there are multiple breaches of warranty, then this may allow the innocent party to rescind as it shows that the other party had not intended to be bound by the terms.

Intermediate Terms

This is a complex term that cannot be categorised as either a condition or as a warranty but which may, as the name may suggest, operate as either a condition or a warranty depending on the effect of the breach.

The right to terminate will depend upon the nature and extent of the breach

Serious or continuing à right to terminate

Minor or capable of simple rectification à right to claim for damages

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]

A 2-year ship charter agreement where the ship was ‘in every way fitted for ordinary cargo service’ à sea-worthiness clause. However, the ship was unable to sail for 20 weeks. Issue of whether the clause was a condition or a warranty.

Court held that though here was clearly in breach, it was not a condition (too minor) and was only entitled to claim damages and not to repudiate the contract.

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 16 CLR 549

Bunge Corp New York v Tradak Export SA Panama [1981] 1 WLR 711

Cehave NV v Bremer Handelsgesellschaft mbH (Hansa Nord) (1976)

Maple Flock Co Ltd v Universal Furniture Products (Wembly) Ltd (1934) 1 KB 148


A promise states that an event will/will not occur, or an undertaking as to the truth of a present/past fact. The breach of this allows for a claim of damages.

A contingency is one, which qualifies a party’s obligation by providing for a contingency. For example where the contract for a sale of goods is subject to the issue of an export licence and neither party obtains the licence à the issue of the licence is only a contingency on which the obligation to perform the contract depends.

Definitional Terms

These are terms, which explain what particular words in a contract mean, and are included to aid understanding.

Procedural Terms

There are terms, which are included to help parties perform the contract. Examples are Alternative Dispute Resolution clauses in a contract, included for guidance in the situation where there’s a disagreement between the parties.

Exclusion Clauses

Exclusion clauses exclude, qualifies or limits the liability of a party for the wrongful conduct specified in that clause.

Only operate for the benefit of one party and are usually argued in defence

The main types of exclusion clauses are:

Excludes a right of the other party

Limit liability to a specified amount

Place conditions on the exercise of a right

In determining whether an exclusion clause is effective, there are two questions that need to be asked:

Is the exclusion clause part of the contract?

What are the legal consequences of the exclusion clause?

The traditional approach has been to view exclusion clauses in a negative light, especially where there is an inequality in bargaining power.

Is the exclusion clause part of the contract?

Signed Documents

The general rule if that where a party signs a contract, they are bound by all the terms in that contract, whether or not they knew about the clause.

L’Estrange v F Graucob [1934] 2 KB 394

The plaintiff bought a vending machine, which as it came to be found out, was not working. She stated that under the SOGA, goods must be fit for the purpose it was bought.

However, the vendor had included an exclusion clause which excluded all implied terms from the contract and the court held that where the parties have signed the contract, they are bound by it, even where the term in question is in excessively fine print and in an area where it could have easily been missed.

However, there are exceptions to this rule:

The party signed the contract due to misrepresentation

The document has no apparent contractual effect

Non est factum (This is not my deed)

Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805

The plaintiff took a wedding dress to the dry-cleaners and requested that they take care, as it was delicate. The plaintiff was asked to sign the receipt of the dry-cleaners and when asked why, the assistant replied that it was to exclude liability should the beads and sequins be damaged. When returned there was a large stain on the dress.

However, there was a wide-ranging exclusion clause on the signed receipt. The court held that the exclusion clause was not effective as the plaintiff has signed it due to misrepresentation.

DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749

The defendant transported machinery for the plaintiff and unloaded it. At this point one of the employees was asked to sign a document. This contained all the terms and conditions of the contract. The goods had been damaged during the transportation.

However, the signature was obtained too late for it be part of the contract.

Decision confirmed in Eggleston v Marley Engineers Pty Ltd (1979) 21 SASR 51

If the party can prove that the document they signed was not what they intended to sign, they can argue non est factum to negate the liability of the exclusion clause.

Unsigned Documents

In looking at unsigned documents, to determine if the clause if part of the contract, the following questions need to be asked:

Should there be a reasonable assumption that the document contained the contractual terms?

Did the party relying on the clause take reasonable steps to provide notice to the other party that the contractual document contained an exclusion clause?

Was notice of the clause provided before, after, or at the time of contract formation?

This knowledge can be actual or constructive knowledge.

Actual:            Occurs when the non-benefiting party was actually made aware of both the existence and the contents of the clause

Constructive:             Occurs when the benefiting party has done all that was reasonably necessary to bring both the existence and contents of the clause to the other party’s attention, regardless of whether actual notice took place.

The type of notice required depends upon the nature of the document containing the exclusion clause. If the document is non-contractual in nature, then actual notice will be required. However, if the document was of a contractual nature, then only constructive notice may be required.

Reasonable Assumption

Causer v Browne [1952] VLR 1

The plaintiff took clothes to the cry-cleaner and was given a ticket. The clothes were damaged and the plaintiff sued. The defendant argued that there was an exclusion clause on the ticket.

However, it was held that the reasonable person would believe that the ticket is an aid to identification, and not a contractual document, and so the clause was not effective

Chapleton v Barry Urban District Council [1949] 1 KB 532

The plaintiff hires two deck chairs and receives a ticket for then, which had an exclusion clause on the back, stating that the council was not liable for faulty or broken chairs. There was a notice on the wall stating that the ticket must be presented to inspectors as proof of hire.

The chair collapsed and the plaintiff was injured. It was held that it was not reasonable to assume that a ticket, which was ostentatiously proof of hire was a contractual document.

Reasonable Notice

What constitutes reasonable notice is answered by examining the circumstances surrounding the receipt of the document and applying an objective test.

Parker v South Eastern Railway Co (1877) 2 CPR 416

The plaintiff left his luggage in the cloak room and received a ticket, which says in large letters, “See Back”, which had an exclusion clause. When the plaintiff returns, the luggage was lost.

It was held that the ticket was a contractual document and the words “See Back” constituted reasonable notice.

The court said that the onus was on the benefiting party to show that it acted reasonably to bringing the existence of the clause to the notice of the other party.

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

The plaintiff drove into a car park and took a ticket from the automatic ticket machine subject to conditions displayed on the premises. He was injured in the car park and this was partly due to the owner’s negligence. The defendant sought to rely on the exclusion clause.

The court held that the contract had been successful formed at the ticket machine and the exclusion clause came at too late notice.

Denning J, stated that where the clause “is so wide and destructive of rights…in order to give sufficient notice, it would need to be printed in red ink, with a red hand pointing to it – or something equally startling.”

Olley v Marlborough Court Ltd [1949] 1 KB 532

The Olleys booked into a hotel and were given a key. On the back of their hotel room door was a notice, which set out the terms and conditions of the contract. It stated that patrons should bring valuables to the reception for safekeeping and if not, then the hotel was not liable. Mrs Olley’s fur coat was stolen.

The court stated that the notice of the clause came too late must come at the time, or before the formation of the contract.

Harsh Clauses

Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989] QB 433

There was a very harsh clause inserted into a contract, which stated that there would be a 5-pound holding fee per transparency for each day that they were held beyond 14 days.

It was held that there needed to be sufficient notice of the clause, due to the harshness of the clause.

Past Dealings

Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379

Robertson argued that the notice on the wharf stating that there was a fare of 1 penny to enter the wharf, and 1 penny to leave was not part of the contract.

The Privy Council held that due to past dealings he ought to have had sufficient notice of the existence of this term, by reason of past dealings, it was therefore part of the contract.

J Spurling Ltd v Bradshaw [1956] 1 WLR 461

The plaintiff wished to house eight caskets of Orange Juice in a warehouse and was sent a landing account once the goods had arrived, which included an exclusion clause. The casks leaked and the plaintiff sued to recover damages.

The court held that due to the course of past dealings with the defendant, the plaintiff was unable to argue that it had come at too late a notice.

What is the Legal Effect of the Clause?

Rules of Construction

The general rule is that the ordinary meaning of words is applied, except where there is a technical meaning or it has been specifically defined in the contract, or a meaning that is applied, deprived from custom or trade usage. The courts look at the internal context of the clause and strive to promote validity.

Commercial Agreements

Where the parties are of equal bargaining power, the courts are less hostile to upholding the application of an exclusion clause.  The courts have recognised that the equality of bargaining power between parties is much greater in commercial agreements and exclusion clauses are often inserted as an effective allocation of risk.

Photo Production Ltd v Securiour Transport Ltd [1980] 2 WLR 283

Lord Diplock held that in commercial contracts, where there is an equality of bargaining power, exclusion clauses should be interpreted using the ordinary rules of interpretation.

Contra Proferentem

This states that any ambiguity in the exclusion clause will be construed against the benefiting party.

White v John Warrick and Co Ltd [1953] 1 WLR 1258

The plaintiff hired a bicycle from the defendant and was injured when the bike fell apart. The defendant sought to rely on an exclusion clause, which stated: “Nothing in this agreement shall render the owners liable for any personal injuries suffered by the rider of this machine.”

The question was whether this clause applied only to actions for breach of contract, or whether it applied to actions in negligence.

The court held that the clause only applied to actions for breach of contract and thus the plaintiff could sue for negligence on tort.

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR

The defendant entered into a futures contract on the plaintiff’s behalf and there was a huge loss, after going beyond the plaintiff’s instructions.

The court held that the defendant could not rely on its limit of liability clause, as that only covered situations where there was a loss as a result of the defendant’s actions on the basis of the client’s instructions.

Wallis Son and Wells v Prat & Hayes [1911] AC 394

The defendants delivered the giant sainfoin, a different and inferior type of seed. They alleged that this was a breach of the term implied and that the goods did not correspond with their description.

However, there was an exclusion clause stating that “all warranties, express or implied” were excluded. The courts held that the clause only applied to warranties and could not be used to exclude liability in this situation as it was a condition.

Fundamental Breach

The ethos behind the fundamental breach rule is that the more serious the breach, the less likely it is that an exclusion clause will apply to that situation. Historically, it has been held that where the breach is fundamental, the exclusion clause would not apply.

Suisse Atlantic Societe d’Armement Maritme SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361

It was held that where a particular breach is such that it goes to the root of the contract, entitling the other party to withdraw, then the exclusion clause will not apply.

Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105

The question is “whether it is of such importance to the promisee that strict performance” is required. If it is, then an exclusion clause does not apply. It states that where there is a breach of a condition, then the exclusion clause does not cover the situation.

The later cases state that the application of fundamental breach as a rule of law is incorrect, and that it is more a rule of thumb.

Council of the City of Sydney v West (1965) 114 CLR 481

It was held by the High Court that earlier cases, which viewed fundamental breach as a rule of law, were wrong.

It should be seen as a rule of evidence, which allows for the interpretation of the clause.

Photo Production Ltd v Securiour Transport Ltd [1980] 2 WLR 283

The plaintiff sued the defendant for damages as their premises were burnt down due to the negligence of an employee who started a fire, which spread. However, there was an exclusion clause that covered this situation.

The court held that there was a clause, which covered the exact situation; therefore it can be used, despite the fact that the breach was of a fundamental nature.

Four Corners Rule

An exclusion clause will protect a defendant only where the breach occurs within the scope of the contract. The clause if only as broad as the contract itself.

Council of the City of Sydney v West (1965) 114 CLR 481

The plaintiff sued for negligence when his car was stolen from the car park.

It was held that the exclusion clause only applies to situations such as if the plaintiff had run into a wall, or if another motorist ran into their car, and not one where the car was stolen.

Main Purpose Rule

The exclusion clause will not be applicable if it is inconsistent with the main purpose of the contract.

Glynn v Margetson & Co [1893] AC 351

The plaintiffs were consignees of a cargo of oranges. The defendants deviated from the course of the voyage, and this caused the oranges to be damaged.

The question was whether the defendants could rely on a clause, which allowed them to stop at any port for any purpose in their defence. It was held that the clause was contrary to the main purpose of the contract – the safe carriage of the oranges – and therefore did not apply.

Nissho Iwai Aust Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219

It was held that an exclusion clause, which excluded the liability when consignment is stolen by a third party, was effective. It was effective in that the situation excluded will always be inconsistent with the main purpose of the contract.

Deviation Rule

An exclusion clause will not protect a defendant where there is a deviation from the performance as contemplated by the parties.

TNT (Melbourne) Pty Ltd v may and Baker (Australia) Pty Ltd (1966) 115 CLR 353

The defendant was a courier company, who employed sub-contractors. The process was that a sub-contractor picks up the goods, and takes it to a depot, from where it goes to its destination by air. However, the sub-contractor, in this fact situation, took the goods home and the goods were stolen.

It was held that the defendant could not rely on the exclusion clause as it had deviated from the agreed procedure.


Negligence must be specifically stated and excluded for an exclusion clause to apply for negligence.

The other action is where negligence is the only action available, in which case, negligence is excluded.

White v John Warwick and Co Ltd [1953] 2 All ER 1021

It was held that where the plaintiff has an action other than negligence open, then, the exclusion clause only lies for the other clause, unless there were words, which specifically applied to negligence.