LGST101: Business Law There is no fear in love.

But perfect love drives out

Study Notes fear.

(1 John 4:18a)

TERMS OF THE CONTRACT

• What did the parties agree to?
• How does the law classify terms and why is this important?
• How does the Unfair Contract Terms Act affect contractual terms?
• If a term is ambiguous, how does a court interpret it? (Generally not tested)

References:
! Shenoy & Loo, Principles of Singapore Business Law, Chapter 10 & 11
! Unfair Contract Terms Act (Cap. 396)

Contents:
Topic Case References Page
1 Contents of a Contract 5-2
2. Distinction between Representations and Terms 5-2
(i) Importance of the truth of the statement to the receiver - 5-2
(ii) Whether the speaker has special knowledge 1) Dick Bentley v Harold Smith Motors 5-3
2) Oscar Chess v Williams 5-3
(iii) If the innocent party was asked to verify the truth - 5-4
(iv) Whether the speaker initiated the statement - 5-4
(v) Whether the statement was formally recorded - 5-4
3. The Parol Evidence Rule 5-4
4. Express & Implied Terms 5-5
a) Terms implied in fact - 5-5
Business Efficacy Test The Moorcock 5-5
Officious Bystander Test 1) MP-Bilt v Oey Widarto 5-6
2) Telestop v Telecom Equipment 5-6
3) Tan Chin Seng v Raffles Town Club 5-6,7
4) Forefront Medical v Modern-Pak 5-7
b) Terms implied by law 5-7
1) Liverpool City Council v Irwin 5-8
2) Bethlehem Singapore v Ler Hock Seng 5-8
3) Scally v Southern Health & Social Services 5-8
c) & d) Terms implied in statute/law - 5-8
5. Classification of Terms 5-9
6. Exemption Clauses 5-10
a) Incorporation - 5-11
By signature 1) L’Estrange v Graucob 5-11
2) Press Automation v Trans-Link Exhibition 5-11
By notice 1) Thornton v Shoe-Lane Parking 5-11
2) Interfoto Pictures v Stiletto 5-12
3) Olley v Marlborough Court Hotel 5-12
By previous course of dealings Hollier v Rambler Motors 5-12
b) Applicable to the situation at hand - 5-13
Use of the Contra-Proferentum Rule 1) Hollier v Rambler Motors 5-13
2) Andrew Brothers v Singer & Co Ltd 5-13
3) Singapore Telecom v Starhub Cable 5-14
Rule of Law Approach (Old) Sze Hai Tong Bank v Rambler Cycle Co 5-14
Rule of Construction Approach (New) Photo Productions v Securior Transport 5-14
c) Is it blocked by the UCTA - 5-15
Definition - 5-15
What kind of liabilities apply - 5-15
Can a 3rd Party rely on an exemption clause - 5-15
Test of Reasonableness 1) George Mitchell v Finney Lock Seeds 5-16
2) Philip Products v Hyland 5-16,17
3) Cosmat Singapore v BoA National Trust 5-17
4) Press Automaion v Trans-Link 5-17
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1. Contents of a Contract
! It is important to establish what the parties agreed on in a contract. The agreed terms
affect their rights and obligations.
! Terms help parties know what they need or need not perform, when to perform and in
what manner. We say that parties are “bound” by the agreed terms, and that the rights
and obligations are enforceable in the eyes of the law.

2. Can statements made before entering a contract be a binding term?

What is the difference between them?

• a term (breach of contract)
• a representation (misrepresentation)
• a puff (no legal consequences)

Drawing the Distinction between Representations and Terms:

• Based on the contractual intention of the parties as objectively manifested by their

words and conduct (Oscar Chess Ltd v Williams [1957])
• However, it may be difficult as parties, often, have no intention on that matter as it is
likely that they do not have an appreciation of the legal distinction between a term and a
representation.
• The difference therefore lies in whether the maker of the statement SHOULD bear
contractual responsibility for the truth of the statement (and not whether he agrees to).
• Courts are guided by the below mentioned guidelines, although none is said to be
decisive: (from Heilbut, Symons & Co v Buckleton)
o Importance of the truth of the statement to the receiver
o Whether the maker of the statement has special knowledge to ascertain the
accuracy of the statement
o Whether the innocent party was asked to verify the truth of the statement
o Whether the maker of the statement initiated the false statement or merely passed
it on
o Whether the statement was formally recorded

Elaboration on the Guidelines (adapted from Contract Law by Mindy Chen-Wishart)

(i) The importance of the truth of the statement to the receiver:

The more important the statement is to the receiver, the more likely it is to be a term.

In Bannerman v. White (1861), D asked if the hops on sale had been treated with sulphur
stating that he would not even bother asking the price if it had. P replied ‘no’. In fact, sulphur
was used on a small portion of the hops. The statement was held to be a term of the
contract.

In Couchman v. Hill (1947), the seller’s reply to the buyer’s question that the heifer being
auctioned was ‘not in calf’, was held to be a term of the contract because the seller knew that
the buyer would not have been interested otherwise. The heifer suffered a miscarriage and
died within two months of its purchase.

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 (ii) Whether the speaker had special knowledge:
A court is more likely to find a term if the maker of the statement, relative to the other party,
has special skill or knowledge in the subject-matter of the statement, or is in a better position
to ascertain, or bears more responsibility for ascertaining, the accuracy of the statement.

A term was found in Dick Bentley v. Harold where a car dealer made a false statement to a
private buyer about the mileage of the car since the replacement of the engine (‘20,000 miles’,
when actually 100,000 miles). The dealer, being ‘in a position to know, or at least find out the
history of the car . . . stated a fact that should be within his own knowledge’.

Dick Bentley Productions v. Harold Smith Motors (1965)

Facts: P made it clear that he was looking for a well-vetted Bentley and was told by D car
dealer that the car had done 20,000 miles. P bought the car and later found out that the car
had done 100,000 miles.

Held: D guilty of breach since they possessed superior knowledge and were “in a position to
know, or at least find out the history of the car”. Also, the representations made in the course
of dealings inducing the other party to act on them, and actually did induce him to act were
considered terms.

In contrast, a representation was found in Oscar Chess v. Williams (1957) where a private
seller misrepresented the model of the car being sold to a car dealer as a 1948 model (relying
on an entry in the car logbook) when it was in fact a less valuable 1939 model. It was held
that the car dealer was in at least as good a position to discover the car’s true age as the seller.

Oscar Chess Ltd v. Williams (1957)

Facts: D offered 2nd-hand car to P in exchange for hire purchase of new car. Log book
stated that year of manufacture was 1948, which was confirmed in good faith by D. P later
found out that date of manufacture was actually 1939 as a previous owner had altered the log
book and sued D for difference in age.

Held: D was not guilty of breach. The age of the car was just a representation and not a
contractual term since D “honestly believed on reasonable grounds” that the statement was
true. Furthermore, P possessed special knowledge to discover the actual age of the car.

(iii) Whether the innocent party was asked to verify the truth of the statement:
A statement is unlikely to be a term if the maker of the statement tells the other party not to
rely solely on the statement but to verify its truth, but it may be a representation.

For example, a representation was found in Ecay v. Godfrey (1947) where a seller stated that
the boat was sound but advised the buyer to have it surveyed.

In contrast, a term was found in Schawel v. Reade (1913) where the seller said to the buyer:
‘You need not look for anything; the horse is perfectly sound. If there was anything wrong
with this horse, I should tell you’.

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 (iv) Whether the speaker initiated the false statement or merely passed it on:
Passing on rather than initiating a statement is more likely to be regarded as a representation
than a term.

Denning LJ explains in Routledge v. McKay (1954) that where a motor-car is sold second-hand
from one person to another in succession and each seller in the chain is passing on
information about the year the car was made by relying on a false entry in the registration
book by some remote seller, then the statement would be treated as a representation and not
a warranty because the seller, unless he is the first owner, is not the originator of the false
statement, but a mere innocent passer-on.

(v) Whether the statement was formally recorded:

Of course, a contract may be wholly oral, but if it is recorded in writing, then the
presumption is that the document contains the complete list of terms (Heilbut Symons v.
Buckleton at 37, 42, and 47).

It is suffice to say that it is open to the claimant to argue that a statement outside the
document is a collateral term of a partly written and partly oral contract, although courts are
slow to make such a finding.

3. The Parol Evidence Rule: Oral Statements and Written Contracts

It states that no extrinsic evidences (oral etc.) can be admitted to add to, vary or contradict
a written instrument. This upholds certainty since parties who have reduced a contract to
writing cannot rely on extrinsic evidence of terms alleged to have been agreed. In Singapore,
the Parol Evidence Rule forms part of s. 93 and s. 94 of the Evidence Act (Cap 97) –
extrinsic evidence should only be used to explain and illuminate the written words, and not
to contradict or vary them.

In Zurich Insurance (Singapore) Pte Ltd v. B-Gold Interior Design & Construction Pte Ltd (2008), the
parol evidence rule was discussed. The court discussed about the admissibility of extrinsic
evidence via 3 approaches – contextual, commonsensical, purposive approaches.
a) The court should try to interpret contractual terms contextually, with reference to extrinsic
materials.
b) Extrinsic evidences should only be admitted if they are [1] relevant, [2] reasonably
available to all the contracting parties and [3] relates to a clear or obvious content.
c) The evidences must go towards proof of what the parties ultimately agreed on (objective
viewpoint).
d) Evidence in the form or prior negotiations and subsequent conduct is admissible.
e) However, courts should be reluctant to allow extrinsic evidence to affect standard form
contracts and commercial documents.
f) The language of the contract constitutes prima facie proof of the parties’ intentions.
g) If the courts do not exercise restraint in the interpretation of such documents, it will
engender commercial uncertainty and encourage pointless litigation.
h) If the courts have found that the parties have used the wrong words, rectification may be a
more appropriate remedy as opposed to enforcing the contract.

Optional: Interpretation of terms in a tenancy agreement (Sheng Siong Supermarket v Carilla, [2011]
SGHC 204, paras 25-41.
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4. Express and Implied Terms

Terms may be express, i.e., Parties may expressly state the terms they agree to. Parties may
negotiate their own terms, or use “standard terms” or standard forms of a party.

When interpreting express terms:

• Judges generally consider the intention of parties.
• If a term is ambiguous, the contra proferentum rule may be applied in interpreting
the term.

Terms may also be implied. Terms may not be expressly found in a contract and sometimes
the law may imply a term.

“An implied term is a fictional device conceived by the courts as a term the parties had in
their mind in order to make the contract workable. It is a fundamental assumption or basic
sense on which the written contract before the court is deemed to have been made. By
definition, it is complementary to the written contract. An implied term, therefore, cannot go
counter to and destroy a sense or term that is already in the contract. Parties cannot have two
contracts, one written and the other implied, contradicting each other.” (from MP-Bilt Pte Ltd
v Oey Widarto, 1999)

a) Terms implied in Fact

Recommended: A good explanation by the local courts is given in Ng Giap Hon v
Westcomb Securities [2009] 3 SLR(R) 518 in paragraphs 34-40.

Such terms must be

[1] reasonable and equitable,
[2] capable of clear expression,
[3] consistent with all express terms of the contract,
[4] necessary to give “business efficacy” to the contract and
[5] is obvious (“officious bystander’ test)

[4] Business Efficacy Test

Either through forgetfulness or bad drafting, it results in the failure to incorporate
terms which would definitely have been inserted into the contract if parties had paid
attention to them.

The courts will imply these terms as necessary to give business efficacy.

The Moorcock (1886)

Facts: Parties contracted for the steamship to berth at the jetty for discharging and
unloading. Ship was grounded and damaged at low tide due to the unevenness of the
river bed.

Held: Parties must have intended to contract on the basis that the jetty will be safe
for the vessel at low tide. Hence, the term implied is that the berth was reasonable
safe for business.
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 [5] Officious Bystander Test
Term which is so obviously a stipulating in a contract that it goes without saying that
the parties must have intended it to form part of the contract. That implied term is
so obvious that even an officious bystander would mention it.

In Shirlaw v Southern Foundries (1926), MacKinnon LJ said “If, while 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!’”

Both tests are complementary inasmuch as the “officious bystander” test is the
practical mode by which the “business efficacy” test is implemented and fulfilled. In
Forefront Medical Technology (Pte) Ltd v. Modern-Pak Pte Ltd (2006), the court mentioned
that the “officious bystander” test is the practical mode by which the “business
efficacy” test is implemented to determine what exactly business efficacy is. Both
general logic and precedent support this view. However, these tests relate to the
possible implication of a particular term to particular contracts. Thus, the
implication of a term(s) in a particular contract creates no precedent for future
cases.

MP-Bilt Pte Ltd v. Oey Widarto (1999)

Facts: D purchased a condominium from P developers and paid in instalments. P

sued for failure of payment on 2nd instalment after the completion of foundation
work. D contended that it was implied term of the Sale and Purchase agreement that
he could defer payment as long as he paid the contractual interest.

Held: D liable because it is not reasonable to neglect and refuse to pay a debt that has
fallen due. Alleged term was not necessary to make the contract work and the term
was utterly inconsistent with the express working and sense of the contract.

Telestop Pte Ltd v. Telecom Equipment Pte Ltd (2004)

Facts: P sought to imply a term that the D, would not, during the period of their
agreement, compete directly or directly with the P.

Held: It is not possible to imply such a broad term into the agreement. The implied
term was far too wide, and the ban was completely contrary to the parties’ express
intentions.

Tan Chin Seng and others v. Raffles Town Club (2003)

Facts: D stated to P that founding membership would be exclusive and without peer
in terms of size, facilities and opulence. Relying on this, P signed up. After D opened,
P experienced overcrowding in the premises and discovered almost 19,000 members
were accepted.

Held: D held liable for breach of contractual terms because D’s statement that it was
a “premier town club” was a promissory term and the club was held liable.
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 The application of the 2 tests: Advertising to be a club of premier standing helps
achieve business efficacy and statement of being a premier club is obvious to
officious bystanders.

Forefront Medical Technologies Pte Ltd v Modern-Pak Pte Ltd [2006] SGHC 3

Facts: P manufactured medical devices for surgical procedures. The devices were
packed into clamshells produced by D. (The material that was thermoformed by D
into the clamshells was supplied by M, another company). P sued D and alleged that
the clamshells were made of substandard material, and claimed for damages. D
argued that it was a condition of the contract that D obtained its materials from M
only, and that it would be considered to have discharged its contractual obligations by
providing the relevant certificates from M.

Held: P’s claim failed. The Court held that it was in fact an express condition that M
would be considered to have discharged its contractual obligations with regard to the
suitability of the material by the provision of the relevant certificates from M.

Even if it was not an express condition of the contract that D would be considered to
have discharged its contractual obligations with regard to suitability of the material by
the provision of relevant certificates from M, it was nevertheless clear that there was
an implied condition to like effect. D must have entered into the contract with P on
the understanding that in so far as the requisite quality of the material utilised was
concerned, the certificates from the actual materials supplier (M) would suffice. Such
an implied term was necessary to give business efficacy to the contract.

Optional: The Singapore CA made remarks on the two tests in Ang Tin Yong v Ang
Boon Chye [2011] SGCA 60. See para 14 on these two tests, or more generally, para
10-11 on interpretation of parties’ terms.

Do not assume that the tests will always work. In Chua Choon Cheng and others v.
Allgreen Properties Ltd and Another Appeal (2009), the developers offered incentive
payments to minority who refused to sell their properties (during the collective sale
of a property) to persuade them. The majority felt this was unfair and wanted court
to imply terms barring incentive payments. It was held that it is not necessary and it is
against the “business efficacy” test, and thus the court cannot imply such terms.

b) Terms implied in Law

Terms to be implied is not a question of the intention of the parties involved, but
are based on wider policy considerations. Court will conclude, as a matter of law,
terms should be implied into certain types of contract.

In Jet Holding Ltd and ors v. Cooper Cameron (Singapore) Pte Ltd and another (2006),
Andrew Phang JA describe such terms as “... general reasons of justice and fairness
as well as of public policy justify the implications of a ‘term implied in law’ in cases
such as the present to the effect that each party would owe each other a duty to take
reasonable care in the performance of the respective parts of the contract they had
entered to.” It is immaterial that the issue had never been pleaded since such terms
are “recognised by the court as a matter of law”.
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 Liverpool City Council v. Irwin (1977)

Facts: Tenants withheld rent as a protest to living conditions in the building, and
alleged that the council was in breach of its duty to repair and maintain the facilities
of the building which it controlled. In reality, no formal lease existed; there was
merely a document entitled “Conditions of Tenancy” which had nothing about the
landlord’s obligation.

Held: Implied term existed but not breached. The obligations are essential to the
relationship created by the tenancy and the landlords should take reasonable care of
the properties. There is policy consideration because leaving the landlord free of
contractual obligations is inconsistent with the nature of the relationship, hence
term implied in law to enforce standard.

Bethlehem Singapore Pte Ltd v. Ler Hock Seng (1995)

Facts: P were retrenched employees who sued the company for benefits negotiated
with the union before their retrenchment.

Held: Courts say there was no reason to imply terms since prevailing policy already
gives the employers discretionary abilities in giving out benefits.

Scally v. Southern Health and Social Services Board (1991)

Facts: P was not informed of this right in contractual term that gave them the right to
acquire valuable additional pension benefits if they exercised that option within a
certain period of time, thus he claimed damages for breach of contract.

Held: Term which obliged the employers to take reasonable steps to inform its
employees of this right should be implied into contract. This implication was
necessary, not just reasonable.

c) Terms implied in Statute

Sometimes, terms may be implied based on statutes. Of course, there is no need to
memorise a list of statutes. Helpful ones include:
Sale of Goods Act:
12(1) – In contract of sale, implied term that seller has the LEGAL right to sell the
goods.
13(1) – In a contract for the sale of goods by description, there is an implied
condition that the goods will correspond with the description.
13(2) – If the sale is by sample as well as by description, the goods must still
correspond with the description.
14(2) – Where the seller sells goods in the course of a business, there is an implied
condition that the goods supplied under the contract are of satisfactory quality.
15(1) – A contract for sale may be one by sample where there is an express or implied
term to that effect in the contract.

d) Terms implied by Custom

Read textbook. This can be subsumed under terms implied by fact for the exams.
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5. Classification of Terms

The law classifies terms according to their importance. Such classification determines
the remedies which an innocent party is entitled to when the term is breached.

An innocent party may not always have the right to terminate a contract for a breach. The
law has different approaches for deciding whether an innocent party may terminate a
contract for a breach or not.

a) The “condition-warranty approach”

The law classifies a term as a condition or a warranty.

! A condition is a term so important to the parties that any breach, regardless of the
consequences, will entitle the innocent party to terminate the contract. This can
sometimes result in unfairness or injustice as the breach may be technical and in fact
cause no loss to the innocent party.
! The breach of a warranty only entitles the innocent party to damages. It does not
entitle the innocent party to terminate the contract.

Factors taken into consideration to determine whether a term is a condition or a

warranty include following:
► Whether the contract expressly states that a particular term is a condition or a
warranty.
► Whether prior case law has decided the status of such a term.
► Whether the nature of the contract, its subject-matter or terms as a whole
indicate if it is condition or a warranty.
► Where a statute classifies the term as a condition or a warranty (for example, see
the Sale of Goods Act).

b) The “Hong Kong Fir approach”

This approach derives from the case, Hong Kong Fir Shipping Co Ltd v Kawasaki Kaishen
Kaisha Ltd [1962] 2 QB 26 (Diplock LJ’s judgement in particular).

The focus is on the nature and consequences of the breach, and not a prior
classification of a term as a condition or a warranty. Parties may, of course, expressly
agree otherwise.

Under this approach, the plaintiff will be allowed to elect to treat the contract as
discharged if the consequences of the breach are so serious as to “deprive the party
not in default of substantially the whole benefit which it was intended that he
should obtain from the contract”.

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 Diplock LJ redefined “conditions” and “warranties”, by focusing on the
consequences (instead of the term) and explained “innominate terms”:

a “condition” is a term, where “every breach of such an undertaking must give rise
to an event which will deprive the party not in default of substantially the whole
benefit which it was intended that he should obtain from the contract”;

a “warranty” is a term, where “it can be predicated that no breach can give rise to an
event which will deprive the party not in default of substantially the whole benefit
which it was intended that he should obtain from the contract”;

for a term where some breaches might deprive the innocent party of substantially the
whole benefit of the contract whilst other breaches might not, the term is an
“innominate term”.

c) The “Hybrid approach”

This seeks to accommodate both the above approaches into one coherent process,
by asking first if the term is a “condition”.

If it is found not to be a condition, it is not automatically classified as a warranty

(as it may be an innominate term under the Hong Kong Fir approach). The term is
then passed through the Hong Kong Fir Approach.

This “hybrid approach” is supported by the House of Lords. See for example:
Bunge Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR.

Recommended: To enhance your understanding as to the guiding factors to

determine if a term constitutes a condition, refer to:
(1) Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 663, paras
162-174.
(2) Sports Connection Pte Ltd v Deuter Sports GmbH [2009] 3 SLR(R) 883, paras
59-64.

6. Exemption Clauses: Exclusion Clauses & Limitation Clauses

An exclusion clause is the attempt of one party to insert terms excluding liabilities that
would otherwise be his.

a) It defines the promisor’s obligations – one should read the contract as a whole
including the exclusion clauses and decide what the promise has agreed to do.

b) It should be regarded as mere defences – one should first construe the contract
without regarded to the exclusion clauses to discover the promisor’s original obligations, and
only then consider whether the clauses provide a defence to the breach of these obligations.

A limitation clause seeks to limit the amount of compensation payable but does not
totally exclude liability. It is commonly used when potential losses are disproportionately
large.
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 Whether a party rely on such a clause depends on the following:
a) Incorporation: the clause been properly incorporated into the contract;
b) Applicable to the situation: the clause covers the breach in question based on its
natural and ordinary meaning. (Also ask if a clause can exempt liability for a fundamental
breach.)
c) Is the clause made unenforceable by provision(s) of the Unfair Contract Terms Act?

1) Incorporation
The exemption clause may be incorporated by signature, by notice or by previous course
of dealings. Note that the general rule is that it must have been in existence at the
point of formation of the contract.

By Signature:
In the absence of fraud or misrepresentation, the party signing the document is bound
by its terms, regardless of degree of notice given and whether or not he has read it.

L’Estrange v. Graucob (1934)

Facts: P bought machine from D and signed sales agreement that contained clauses in
“legible, but regrettably small print”, which she did not read.

Held: P was bound by the terms. Only where the contract is an unsigned document (e.g.
railway tickets), D must prove that P was aware or ought to have been aware of its terms.
If it is signed, then in the absence of fraud and misrepresentation, it is binding regardless
of whether it has been read.

Press Automation Technology Pte Ltd v. Trans-Link Exhibition Forwarding Pte

Ltd (2003)

Facts: P entered into contract for D to transport a machine. Contract included an

incorporation clause with a limitation clause. Machine was damaged and P sued D.

Held: Even if the limitation clause was too onerous and unusual and D did not bring it to
P’s attention, P had signed the agreement with an explicit incorporation clause and is
bound to the terms.

By Notice:
Adequate notice of the existence of clause must be given (question of fact).

Thornton v. Shoe Lane Parking Ltd (1971)

Facts: P parked car in D’s automated car park and machine issued ticket containing
words that stated the ticket was based on conditions displayed on the premises. P would
have to walk around the car park to look for the notice board in order to read these
conditions. P injured himself while retrieving car.

Held: Contract concluded when P put his money into the machine. Hence, it was before
the exemption clauses in the premises could be inspected and were thus not held to be
liable. Furthermore, where the exemption clause relied on is unusually wide or onerous, it
requires unusually explicit notice before it is applicable.
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 Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd (1989)

Facts: P loaned transparencies of photographs to D with a small delivery note stating that
it was to be returned in 14 days. A condition of holding fee of £5/day for each
transparency for late return.

Held: D was not liable for the large claim. The clause was extraordinary and
disproportionately large but nothing special was done to attract D’s attention. This
explicit notice for unusual terms is not limited to exemption clauses but is of general
application to all terms.

Olley v Marlborough Court Hotel (1948)

Facts: P was a long staying resident of D. As usual she left her room key on a rack behind
the reception one day, but when she came back it was gone. Inside her room, her fur coat
had been stolen. P asked to be repaid for the cost of the coat. D pointed to an exclusion
clause on a notice behind a door in the bedroom leading to a washbasin, which said,
“The proprietors will not hold themselves responsible for articles lost or stolen, unless
handed to the manageress for safe custody.” P argued that the clause was not
incorporated into the contract.

Held: Firstly, D had failed to take reasonable care as they were required to do. Secondly,
the disclaimer was not part of the contract and the hotel could not rely upon it. The
contract for the storage of the coat was formed at the reception desk. There was no way
that P could have been aware of the disclaimer at that point and so it could not be part of
the contract.

By Previous Courses of Dealings:

Courts may infer notice of exclusion clause from a long & consistent (not frequent)
course of dealing between the parties.

Each party must have led the other to reasonably believe that it intended that their rights
and liabilities should be ascertained by reference to the terms of a document which had
been consistently used by them in previous transactions.

Hollier v. Rambler Motors (AMC) Ltd (1972)

Facts: P’s car was serviced by D 3 or 4 times over the past 5 years and P signed the
exclusion clause each time exempting the D from liability for damage by fire on premises.
P did not sign clause this 1 time and the car damaged in fire.

Held: 3 to 4 transactions in 5 years were insufficient to enforce the inference of the

exemption clause.

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 2) It is applicable to the situation at hand?

Part 1: Use of the Contra Proferentum Rule:

Ambiguity in exclusion clauses are strictly construed against the party intending to rely on
them because they are the one who crafted it.

Hollier v. Rambler Motors (1972)

Facts: P’s car was serviced by D 3 or 4 times over the past 5 years and signed the exclusion
clause each time exempting the D from liability for damage by fire on premises. P did not
sign clause this 1 time and the car damaged in fire.

Held: The clause “the company is not responsible for damage caused by fire to customers’
cars on the premises” was held to be too ambiguous. This is because “damage caused by
fire” was interpreted to have occurred “in the absence” of negligence. Thus negligence by D
was not covered by the EC.

Andrews Brothers (Bournemouth) Ltd v. Singer & Co Ltd (1934)

Facts: Agreement provided that “all conditions, warranties and liabilities implied by statute,
common law or otherwise are excluded”. D delivered a car that was not a new car as asked
for by the P.

Held: D cannot rely on the exclusion clause because the clause dealt with implied terms but
the obligation to deliver a new car was an express term.

Singapore Telecommunication Ltd v. Starhub Cable Vision Ltd (2006)

Facts: D built extension from a part of the cable television transmission infrastructure,
“tapping” to convey cable television signals to other excluded properties. P sued for
damages.

Held: D liable because the exclusion clause was construed strictly and the application only
restricted to those particular circumstances that was envisaged by the parties at that point in
time. “Tapping” was not envisaged by the parties and hence, D cannot exclude liability for
it.

Part 2: Doctrine of a Fundamental Breach: Rule of Law v Rule of Construction

Fundamental Breach (also known as a repudiatory breach)

=> A repudiatory breach is one in which the party in breach has acted in a way such as to
allow the innocent party the right to terminate the contract.

In this case, we say that the party in breach has repudiated the contract.

Alternatively, a repudiatory breach can be seen as a breach of a condition or an innominate

term that has the consequence of a condition.

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 Rule of Law approach – previously courts adopted a Rule of Law approach, that an
exclusion clause cannot exclude liability for a fundamental breach. The seriousness of the
breach for which exemption is sought, was a determining factor.

Sze Hai Tong Bank v. Rambler Cycle Co (1959)

Facts: P motorcycle company handed goods over to shipping company. Contract contained
exclusion clause ceasing all responsibility and liability once goods are unloaded. Shipping
company released goods to a Singapore trading company without proper documentation and
without payment. D acted as indemnity for trading company.

Held: D liable because the shipping company committed a fundamental breach and was liable
to P. Exclusion clause did not apply to such fundamental breaches.

Rule of Construction approach – courts now apply a question of construction in every

single case to test if liability may be excluded regardless of whether a fundamental breach has
been committed.

Photo Productions Ltd v. Securior Transport Ltd (1980)

Facts: D provided security to P’s premises. D’s employee negligently started a fire that
destroyed P’s factory. D relied on exclusion clause that they were not liable for damages by
their employees unless the loss was solely attributable to the negligence of D’s employees
acting within the course of their employment.

Held: Applied the Rule of Construction and D could apply exemption clause. This was also a
commercial transaction and courts did not want to interfere with the allocation of risks
between the parties.

3) Is it blocked by the UCTA?

The Act basically adopts two broad approaches - either rendering the clause wholly
inoperative or allowing the clause to operate provided that it passes the “reasonableness test”
laid down under the Act itself.

“... the Act is one of the most important statutes which have been enacted in recent times. Its
main aim is to protect consumers and those who enter into contracts on standard terms
and conditions prescribed by their contracting partners. Very broadly speaking, under the
Act, certain liabilities cannot be excluded or limited at all by reference to a contract term or a
notice. These include liability for death or personal injury resulting from negligence.
They also include certain liabilities arising in the sale and supply of goods, particularly a sale
and supply to a consumer. Other liabilities cannot be excluded or limited by reference to a
contract term except in so far as the contract term satisfies the requirement of
reasonableness.”
(Kenwell & Co Pte Ltd v Southern Ocean Shipbuilding Co Pte Ltd [1999])

NOTE: The UCTA only applies to exclusion and limitation clauses, not to clauses defining
one’s obligations.

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 Definition of Negligence:
Under section 1(1) negligence is defined to be: the breach

(a) of any obligation, arising from the express or implied terms of a contract, to take
reasonable care or excess reasonable skill in the performance of the contract, or

(b) of any common law duty to take reasonable care or exercise reasonable skill (i.e. in
tort)

What kind of liabilities apply:

Under section 1(3), sections 2 to 7 of the Act only apply to situations pertaining to “business
liability”.

! Exclusion of liability for negligence:

o section 2(1): death or personal injury - not permitted.
o section 2(2): damage other than death or personal injury - permitted, subject to the test
of reasonableness.

! Exclusion of contractual liability:

Section 3: must first show (under section 3(1)) either that one of the contracting
parties “deals as consumer” or that one of the contracting parties deals “on the
other’s written standard terms of business” (note: the phrase “dealing as consumer”
is defined in section 12).

Note in particular section 3(2):

“3- (2) As against that party, the other cannot by reference to any contract term
when himself in breach of contract, exclude or restrict any liability of his in respect of
the breach; or claim to be entitled —
(i) to render a contractual performance substantially different from that which was
reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no
performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the
contract term satisfies the requirement of reasonableness.”

Can a third party rely on an exclusion clause?

Common Law
Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 and The Eurymedon [1974] 1 All ER 1015.
Refer to Notes on Privity as to how the court’s reasoning led to the conclusion that the
stevedores could rely on the clause there. See also s.8(1) of the CRTPA.

Statute
First, consider: now that we have the CRTPA, would this Act now permit the stevedores in
the facts of The Eurymedon to rely on the exclusion clause in that case? (See s. 2(1) and 2(6)
of the CRTPA.)

Secondly: can a promisor rely on an exclusion clause if he is sued by a third party under
CRTPA? See e.g. section 4 of the CRTPA. If so, can the third party attempt to strike the
clause down under the UCTA? See s. 8(2) of the CRTPA.
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 Test of Reasonableness: see section 11 and Second Schedule
The test takes into account various factors, including relative bargaining power of the
parties; the availability (or otherwise) of a reasonable alternative as well as the availability
of advice — in summary, it is a very factual inquiry.

Test of Reasonableness in Contract: s11(1)

Tests whether a contractual term is a fair and reasonable one, having regard to the
circumstances which were, or ought reasonable to have been, known to or in the
contemplation of the parties when the contract was made.

Test of Reasonableness in Tort: s11(3)

Notices excluding liabilities in tort must be fair and reasonable having regarded to all
circumstances at the time the liability arose or would have arisen. (s. 11(3))

The burden of proof is on the person alleging that the term is reasonable to show that it
is so.

Guidelines for “Reasonableness”: see 2nd Schedule

o Strength of bargaining positions of parties.
o Whether the customer received an inducement to agree to the term.
o Whether the customer knew or ought reasonably to have known of the existence
and extent of the term.
o Whether compliance with the condition was practical.
o Whether the goods were manufactured to the special order of the customer.

The following cases are good examples you can refer to.

George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd (1983)

Facts: D negligently supplied cabbage seeds of an inferior variety to D. Crop failed and P
suffered losses. D sought to limit liability to replace the seeds, limit the refund of the
price paid, and excluded any express or implied conditions.

Held: D could not rely on unreasonable limitation clause. Reasons are:

[1] terms of trade between the parties were never negotiated (unequal bargaining power),
[2] breach was a gross negligence on D’s part,
[3] D could have insured against crop failure caused by supplying the wrong seeds
without materially increasing the price of the seeds and
[4] not reasonable to allow reliance on limitation clause cause it has never been used in
the past.

Philips Products Ltd v. Hyland (1987)

Facts: Ps, who were not in the business of equipment hire, hired an excavator and its
driver. Contract asked that P “alone shall be responsible for all claims arising in
connection with the operation of the plant by the drivers”. Drivers negligently drove
excavator into collision and damaged P’s building.

Held: Exclusion clause not fair and reasonable. Reasons are:

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 [1] Clause was not negotiated between parties, was simply a standard condition.
[2] Hire period was too short for P to arrange for insurance cover and
[3] P played no part in selecting the driver and had no control over the way the driver
performed his job.

Cosmat Singapore (Pte) Ltd v. Bank of America National Trust & Savings
Association (1992)

Facts: P discovered that D had honored and paid 15 forged cheques and sued for
damages being paid out.

Held: Claim dismissed, P had not notify D of the debit in their bank statement.
Furthermore, the clause was reasonable because
[1] circumstances were reasonably known, or in the contemplation of the parties when
the contract was entered into,
[2] both parties were on equal bargaining power,
[3] P entered into the agreement on their own free will and
[4] prescribed period to verify accuracy of bank statement was reasonable since P were a
commercial organization with the means to do so.

Press Automation Technology Pte ltd v. Trans-Link Exhibition Forwarding Pte

Ltd (2003)

Facts: P entered into contract for D to transport a machine. Contract included an

incorporation clause with a limitation clause. Machine was damaged and P sued D.

Held: Even if the limitation clause was too onerous and unusual and D did not bring it to
P’s attention, P had signed the agreement with an explicit incorporation clause and is
bound to the terms.

However, under s. 11(5), D has discharged the burden that the limitation term is
reasonable because:
[1] Use of limitation of liability clauses is widespread in the transport industry.
[2] P had bargaining power and option to contract with other forwarders.
[3] Decision to engage D was a calculated one so as to minimise costs and was also made
in the interest of practicability and convenience.

Optional: For consumer transactions, there is special protection available under the
Consumer Protection (Fair Trading) Act (Cap 52A, 2007 Rev Ed): this Act was recently
amended by Act 7 of 2012, adding new sections 12A to 12F. These new provisions
provide consumers who have been transferred goods which do not conform to the
terms of the contract (whether express terms or terms implied pursuant to certain
stipulated provisions under the Sale of Goods Act, the Supply of Goods Act, or the
Hire-Purchase Act) with additional remedies, allowing the consumer to seek
repair/replacement of the goods, or to seek a reduction in the price payable for the
goods, or to return the goods and seek reimbursement of the price paid for them.

***
Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up.
(Galatians 6:9)

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