TUTORIAL 5
Answer guide
The purpose of this tutorial was to “pick issues” which are
being raised by particular questions, and not to develop fully
worked out answers. Accordingly the following answer
guides are not fully worked out answers, but the questions,
with the relevant details highlighted, and a short note on the
issues which need to be addressed to answer the particular
issue raised by the question.
Question 1
Mary, a South American manufacturer of cane artefacts, entered
into a written contract with Bob under which Bob had the
exclusive rights to distribute and sell Mary’s artefacts in
Australia. The agreement was for 10 years, although Mary had
the right to terminate the agreement at any time upon giving 6
months’ written notice. [THIS CONSTITUTES CONTRACT
ONE, OR “THE HEAD AGREEMENT”]
Two years after the agreement was entered into, Bob granted to
Kate, as he was permitted to do by the terms of the agreement,
an exclusive right to act as his agent for the sale of Mary’s
furniture within the state of NSW. Bob’s agreement with Kate
was expressed to last 4 years. Clause 6 of this agreement
stipulated that Bob had the right to terminate the agreement at
any time upon giving written notice of one month. [THIS
CONSTITUTES CONTRACT TWO OR “THE AGENCY
AGREEMENT”] Before signing the agreement with Bob, Kate
telephoned Bob and asked for an assurance that Bob would only
terminate the agreement if Mary terminated Bob’s agreement
with Mary. Bob said to Kate: ‘ No problems. You can rest easy
on that.’ [THIS IS THE FIRST REASSURANCE, OR
STATEMENT MADE BY BOB].
One month ago, Kate advised Bob that she would be investing
heavily in a new advertising campaign and asked for (and
received) a repeat of the re-assurance about contract
termination. [THIS IS THE SECOND REASSURANCE, OR
STATEMENT MADE BY BOB].
A few days ago, and after one year of her agreement with Bob,
Kate received notice in accordance with clause 6 of the
agreement terminating the agency arrangement. Kate
immediately rang Mary and was advised that Mary had not
terminated her agreement with Bob.
Kate seeks your advice as follows:
(a) Does she have any basis to bring a claim against Bob for
breach of contract?
(b) Excluding claims based on tort or Statute, is there any other
basis for a claim against Bob?
This question is in two parts. Structure your answer so that you
consider each part separately.
(a) WORK OUT WHAT THE QUESTION IS
ABOUT:
There are two contracts mentioned in the question.
Which contract are you asked to consider? The
second, or the Agency agreement – the one
concluded between Kate and Bob. Be careful to
consider the correct contract.
The breach Kate is complaining about is Bob’s
early termination of the Agency Agreement. For
this to be a breach of contract, Bob’s statement
that he would not terminate unless his Head
Agreement with Mary is terminated needs to be
part of the Agency Agreement. So consider any
possible means by which this statement can have
contractual force.
Be sure you know which statement you are
considering. Bob has twice made a statement that he
will not prematurely terminate the Agency
Agreement: once before the Agency Agreement was
entered into, and once after it was on foot.
Consider carefully the timing of each statement?
Which may have formed part of the contract
between Bob and Kate?
The conversation between Bob and Kate before
entering the contract is the one to look at here
(Reassurance 1). The later conversation, when the reassurance was given took place after the contract was
entered into (Reassurance 2).
Was Reassurance 1 a TERM OF THE CONTRACT
(or part of the offer which was subsequently accepted)
or was it a COLLATERAL CONTRACT? Or was it
neither?
TERM
WHAT MUST WE CONSIDER TO ESTABLISH
WHETHER SOMETHING IS A TERM OF THE
CONTRACT?
The question tells us about Clause 6. So the contract
in question must be a written contract.
Can an oral representation form part of a written
contract?
Consider the parol evidence rule.
Consider any relevant exceptions to the parol
evidence rule.
Looking at all the above, do you think that Bob’s
statement is a term of the contract between Bob
and Kate?
WHAT ARE THE ELEMENTS OF
COLLATERAL CONTRACT?
 PROMISSORY STATEMENT
(Heilbut Symons & Buckleton; JJ Savage & Sons Pty
Ltd v Blakney)
WAS THE STATEMENT MADE BY BOB, NOT
TO TERMINATE THE CONTRACT WITH KATE
UNLESS HIS CONTRACT WITH MARY IS
TERMINATED, A PROMISE TO BE RELIED ON,
OR MERELY A REPRESENTATION ?
Did Kate enter into the contract in consideration of
the statement about the termination?
Was there “an intention on the part of either or both
parties that there should be a contractual liability in
respect of the statement”?(per Lord Moulton in
Heilbut Symons v Buckleton)
Yes - Collateral Contract
No - (You could consider misrepresentation – to be
considered later in
course)
 INCONSISTENCY
Was the statement inconsistent with the terms of the
main contract? (Hoyt’s v Spencer)
Was Bob’s statement inconsistent with the contract
entered into between Bob and Kate?
If yes - no collateral contract.
If no – collateral contract.
Looking at all of the above, do you think that there
was a Collateral Contract? Reach a decision and
draw your conclusion.
(b) This will be dealt with in a later tutorial.
Question 2
Andy brought his bike into his favourite bike shop for a service
and repairs. He was entering a special race the following week
and was certain that he was likely to win the considerable prize
for first place. He presented the bike to the assistant and
received a docket with an identifying number and the words:
Has a contract been formed between Andy and the bike shop?
When? When he handed over the bike and received the docket?
“All goods accepted only subject to the terms and conditions
displayed.”
Do the words on the docket form part of the contract between
Andy and the bike shop? Why? Why not?
Andy chatted to the shop assistant about the upcoming race and
its importance to him and the need for his bike to be in top
condition. He noticed the words on the docket and asked about
the terms and was told not to worry about them as they were
only concerned with the recent price changes for new bikes.
What is the status of this conversation? What information has
Andy given the bike shop about what damage he will suffer if the
bike is not ready? When was this information given? What
information did Andy receive about the wording on the docket?
There was a large sign behind the counter and in front of Andy
but it had a bike hanging in front of it and so was not visible at
this time.
The sign read:
“All care but no responsibility taken for goods left for repair or
service or for any loss or damage howsoever caused.”
Does this sign form part of the contract? Why? Why not?
The day before the big race Andy went in to collect his bike and
it could not be found. Someone had put the wrong tag on it and
it was stored in the basement with the unclaimed bikes.
Why was Andy’s bike lost? Negligence (carelessness)?
Advise Andy.
WORK OUT WHAT THE QUESTION IS ABOUT:
Andy wants to recover damages from the bike shop.
Issue 1: Is the exclusion clause, on which the shop would like
to rely, included in the contract?
Issue 2: If yes, how will it be interpreted?
Issue 1:
Is the exclusion clause included in the contract? (Note: You may
need to go through all the ways in which a clause can be
incorporated into a contract, but only some will need to be
discussed in detail.)
Incorporation of exclusion clause:
- by signature (L’Estrange v Graucob)
Has Andy signed a document?
- by notice ( unsigned document)
When was the contract made? When Andy handed over the
bike and received the docket? When was the clause brought
to Andy’s attention? Is a receipt/ docket a contractual
document? Would a reasonable person regard it as a
document containing contractual terms or as a mere voucher
to produce when collecting the goods? (Causer v Browne)
 What do you think?
 Does the docket contain the term or just
give notice of a further term?
Have reasonable steps been taken to bring to exclusion clause
to Andy’s attention?
 Sign on the wall is large
 It is obscured
 Where exactly is it, is it visible at the time
the customer enters the contract or only
after? (Olley v Marlborough Court) –
when was the contract made?
 Does the docket provide notice to Andy
that there are further terms
Has the exclusion clause been incorporated by a course of
dealing? (Balmain Ferry v Robertson)
 ‘favourite bike shop”
 Andy has a keen interest in bike riding
 What is the effect of the comments by the
shop assistant? Do these override the
clause as it is written?
It is a question of reasonableness (Henry Kendall v Lillico)
How many dealings have there been?
Has the clause been incorporated?
If so then consider how it will be interpreted.
(If not, do not stop as you may be wrong.
Consider the interpretation of the clause as if it is included
in the contract. If you are given the clause you should always
interpret it. If you are not given the actual clause you
cannot interpret it.)
Issue 2 – interpretation of the clause.
Construe according to its ordinary meaning (Darlington Futures
v Delco).
Is the meaning clear and unambiguous?
Why was the bike lost? How did the bike end up with the wrong
tag? Negligence? Is the negligence in wrongly storing the bike
covered by the clause?
There is no express reference to negligence. Are the words
“howsoever caused” wide enough to include negligence? (Rutter
v Palmer)
Do the words include negligence and other grounds? (Canada
Steamship v The King)
Are the words ambiguous?
If yes, consider the contra proferentem rule. That is - construe it
against the person seeking to rely on the clause – here the shop.
Consider the four corners rule – does it apply here?
Make a decision about each matter.
If the clause is not effective to exclude the damage suffered by
Andy, what damages may Andy recover? Was it within the
reasonable contemplation of the parties that Andy would
participate in an important bike race? (Hadley v Baxendale;
Victoria Laundry case). Did he lose the prize in the bike race,
or did he lose the chance to win the prize? (Howe v Teefy)