LAWS6021 Principles of Contract

Seminar Guide, Week 9

Term 1, 2023-2024

Week 9
Terms I: Express Terms
Reading: FCLHK Chap 9, pp 389-423.

Core Reading:

Introduction to terms FCLHK § 1 (p 389).

Written Terms - Signed
Effect of signature
Incorporation by reference
Incorporation by inference
Non-contractual documents
Unusual and onerous terms
Written Terms – Unsigned
Timeliness
Non-contractual documents
Reasonable notice
Pre-contractual Statements
FCLHK § 2.1 (pp 389-393).
FCLHK § 2.2 (pp 393-394).
FCLHK § 2.3 (pp 394-396).
FCLHK § 2.4 (p 396).
FCLHK § 2.5 (pp 397-401).
FCLHK § 3.1 (pp 401-404).
FCLHK § 3.2 (p 404).
FCLHK § 3.3 (pp 404-416).
FCLHK § 4 (pp 417-423).

Core Cases:

• Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334, [2006] 2 HKLRD
831 (CFA).
• Parker v South Eastern Railway Co (1876–77) LR 2 CPD 416 (CA, Eng).
• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 2 QB
433 (CA, Eng).
• Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER
65 (CA, Eng).

INTRODUCTION TO TERMS

The terms of a contract establish what the parties are required to do or abstain
from doing, or what they must do if they wish to achieve a particular result. The
terms, in other words, establish what the contract is all about. It is therefore
important to identify the contract’s terms. An express term is a term to which
the parties have expressly agreed. Implied terms, in contrast, are terms that the
parties have not expressly agreed but still form part of the contract either
because the parties have impliedly agreed to them or because they have been
implied into the agreement by legislation. This week’s class examines the
different ways in which an express term (either written or oral) is incorporated
into a contract, and next week’s deals with establishing the existence of implied
terms.

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Seminar Guide, Week 9
Term 1, 2023-2024

WRITTEN TERMS: SIGNED

Effect of signature. The simplest case of incorporation of terms occurs when

a party signs a document which sets out terms of the agreement. The signing
party will be bound by the document, even if he has not read it (L’Estrange v F
Graucob Ltd [1934] 2 KB 394 (KB)). This rule extends to all legal documents
(not only contracts), unless the signature was induced by fraud, mistake,
misrepresentation, non est factum, duress, undue influence, or lack of mental
capacity.

• Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334, [2006] 2
HKLRD 831 (CFA).

The same applies even if the signing party cannot read the language in which
the contract is written (Pathak Ravi Dutt v Sanjeev Maheshwari [2014] 3
HKLRD 597 (CFI); The Luna (1920) P 22 (Adm)), and even if it was explained
to him in a language he did not understand (Kincheng Banking Corp v Kao Yu
Keui [1986] HKC 212 (CA)). Where, however, the contract is incorrectly
explained or translated, extrinsic evidence of that explanation or translation is
admissible in order to show that it affected the understanding of the written
agreement’s language by reasonable persons in the position of the parties (Ma
Ip Hung v Lai Chuen (t/a Kin Hing Factory) [1957] 1 HKLR 32 (SC)).

Incorporation by reference and inference. The rule on incorporation by

signature can operate to cause the incorporation of a term that is adverted to
only by reference in the signed document (Landale Development Ltd v Zhum
Heng Development Ltd [1990] 1 HKC 274 (DC)). A term may be incorporated
into a contractual document not only by reference, but also by inference (Kwan
Ka Man Blanche v Esprit Retail (Hong Kong) Ltd [2004] 4 HKC 378 (CFI)).

Non-contractual documents. A party who has signed a written document

without reading it will not be bound by its terms where it was not reasonably
apparent that the document was of a contractual character (Grogan v Robin
Meredith Plant Hire [1996] CLC 1127 (CA, Eng)).

Unusual and onerous terms. It has been held in Canada that an unusual
and onerous term in a signed contractual document will not be incorporated
into the contract where the signer can prove that six elements are present
(Tilden Rent-A-Car Co v Clendenning (1978) 83 DLR (3d) 400 (CA, Ontario)).
In England and other Commonwealth jurisdictions, there has been reluctance
to allow the Canadian exception. Although there is some evidence that Hong
Kong may be more receptive (Wing On Properties and Securities Co Ltd v
Wave Front Enterprise (HK) Ltd [2007] 2 HKC 54 (CFI); Citibank (Hong
Kong) Ltd v Au Wing Lun [2006] HKCU 42 (DC)), the Court of Final Appeal
has not yet approved the Canadian doctrine (Ming Shiu Chung v Ming Shiu
Sum (2006) 9 HKCFAR 334, [2006] 2 HKLRD 831 (CFA)).

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Term 1, 2023-2024

WRITTEN TERMS: UNSIGNED

Timeliness, contractual document and reasonable notice. Sometimes

a written term, purported to be contractual, is to be found in a document that
the parties have not signed. These unsigned terms will be incorporated into a
contract only if three overlapping preconditions are satisfied:

(i) notice of the term must have been given before, or at the time, of
contracting (Thornton v Shoe Lane Parking Ltd ([1971] 2 QB 163
(CA, Eng));
(ii) the term must have been contained in a notice that a reasonable
person would understand to have contractual effect (Chapelton v
Barry Urban District Council [1940] 1 KB 532 (CA, Eng); Li Mun
Chung v East Asia Steam Laundry Co [1961] HKDCLR 28 (DC));
(iii) the party seeking to rely on the term must have taken reasonable
steps to draw the other party’s attention to the existence of terms in
the document (Wong Wai-Chun v The China Navigation Co Ltd
[1969] HKLR 471 (FCSC); Yuen Shek Sang v Hung Ching Travel &
Enterprise Ltd [1980] HKC 450 (DC)).

• Parker v South Eastern Railway Co (1876–77) LR 2 CPD 416 (CA, Eng).

It is possible that a party will not be bound by a term in an unsigned notice if it

is in a language which that party does not understand and where that party’s
illiteracy is known to the other party. In such a case, the party relying on the
unsigned term must have done all that could be reasonably required of him to
draw the other party’s attention to the existence of terms in the document ‘in
such a way that the other party cannot be heard to say that he did not read them’
(Chan Woon-hung (t/a Ocean Plastic Factory) v Associated Bankers
Insurance Co Ltd [1993] 2 HKLR 127 (PC, HK)).

The burden of proof which the party relying on the unsigned written term must
discharge in showing that he has drawn that term to the other party’s attention
accords to the civil standard of reasonableness. What is ‘reasonable’ in any
given case depends, however, on all the facts of that case and, most especially,
the nature of the unsigned term. The more onerous or unusual the term, the
more that will be required by way of drawing the existence of that specific term
to the other party’s attention.

• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989]

2 QB 433 (CA, Eng).

PRE-CONTRACTUAL STATEMENTS

An oral or written statement made in the course of negotiating a contract, but

before the contract’s conclusion, will be a term if it was intended by the parties
to form part of the contract itself. The same pre-contractual statement will

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simultaneously be an operative misrepresentation if it was an untrue statement

of fact (or perhaps of law) that induced the representee to conclude the contract.

Some pre-contractual statements are neither terms nor misrepresentations, but

‘mere puffs’. A very common species of puff is an advertising boast (Chan Yeuk
Yu v Church Body of the Hong Kong Shengkung Hui [2001] 1 HKC 621 (CFI);
c.f., Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA, Eng)).

Whether a statement is a term or a representation is an issue of the parties’

objectively-established intention. The common law has developed several tools
to assist in the process of determining the parties’ intention towards the
statement:

(i) Where a party making a statement suggests that the other party verify
it for himself, it is more likely that the statement was not intended to
be a term (Ecay v Godfrey (1947) 80 Ll L Rep 286 (KB)):
(ii) Conversely, where a statement is made and the representor dissuades
the representee from verifying it for himself, it is more likely that the
statement was intended to be a term rather than merely a
representation (Schawel v Reade [1913] 2 IR 81 (HL)):
(iii) The lapse of time between the statement being made or repeated and
the conclusion of the agreement is also a relevant factor; ‘the longer
the interval, the greater the presumption must be that the parties did
not intend the statement to have contractual effect in relation to a
subsequent deal’ (Inntrepreneur Pub Co (GL) v East Crown Ltd
[2000] 2 Lloyd’s Rep 611 (Ch)):
(iv) If a party declares that a statement is of importance to him, it is more
likely that the statement will constitute a term of the subsequent
contract (Bannerman v White (1861) 142 ER 685 (CP)):
(v) Where the party making the statement possesses less expertise or
special skill concerning the statement’s subject matter than the party
to whom the statement is addressed, it is less likely that the statement
was intended to be a contractual term (Oscar Chess Ltd v Williams
[1957] 1 All ER 325 (CA, Eng); Harlingdon and Leinster Enterprises
Ltd v Christopher Hull Fine Art Ltd [1991] 1 QB 564 (CA, Eng)):
(vi) Conversely, where the party making the statement possesses more
expertise or special skill than the party to whom the statement is
addressed, it is more likely that the statement was intended to be a
contractual term (Ko Ching Fung v Fulltin Investment Ltd [2007]
HKCU 1182 (CA)).

• Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All
ER 65 (CA, Eng).

Subject to the parol evidence rule, precontractual statements that are left out of
a contractual document are less likely to be regarded as terms (Heilbut, Symons
& Co v Buckleton [1913] AC 30 (HL)).

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