TERMS AND

EXCLUSION
CLAUSES

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WEEK 4

SEMINAR OUTLINE
What are terms?
Express or Implied Terms
Terms v.s. Representation
Incorporation
Parole Evidence Rules

Relative Importance of Terms

How are terms implied in contracts?
Exemption Clauses

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Statutory Limitations

TERMS

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WHAT ARE
TERMS?

WHAT ARE TERMS?

Content of the contract
Sets out the mutual obligations of the parties to a contract
May be express, implied or imposed by law
Questions to ask yourself

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Is X a term of the contract?

If yes, what does Term X say?
What is the importance of Term X? What are the
consequences of a breach of Term X?
Are there any other terms of the contract which will limit or
restrict the liability imposed by a breach of Term X?

EXPRESS AND
IMPLIED TERMS
Express Terms
Implied Terms
Terms implied in fact

Officious bystander test

Business Efficacy test

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Terms implied in law (Case law)

Terms implied by statute
Terms implied by custom

TERMS

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PAROLE
EVIDENCE RULE

PAROLE EVIDENCE
RULE

Understand the context of contract negotiation which leads to the

final form of the agreed contract

Parole Evidence Rule

Limits the use of extrinsic evidence to change the terms of the
contract where the contract is reduced in writing.

Formerly based in common law (i.e. case law)

Found in Evidence Act (Chapter 97) of Singapore
See Sections 93 94
China Insurance Co (Singapore) Pte Ltd v Liberty
Insurance Pte Ltd (2005)
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior
Design & Construction Pte Ltd [2008] 3 SLR 1029; [2008]
SGCA 27

What is the purpose of such a rule?

Balancing justice v.s. certainty

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Exceptions to the Parole Evidence Rule

EVIDENCE ACT
Evidence of terms of contracts, grants and other dispositions of
property reduced to form of document
93. When the terms of a contract or of a grant or of any other disposition
of property have been reduced by or by consent of the parties to the form
of a document, and in all cases in which any matter is required by law to
be reduced to the form of a document, no evidence shall be given in
proof of the terms of such contract, grant or other disposition of property
or of such matter except the document itself, or secondary evidence of its
contents in cases in which secondary evidence is admissible under the
provisions of this Act.

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Look at the Act for the details on the exceptions and the illustrations.

EVIDENCE ACT
Exclusion of evidence of oral agreement
94. When the terms of any such contract, grant or other disposition of
property, or any matter required by law to be reduced to the form of a
document, have been proved according to section 93, no evidence of any
oral agreement or statement shall be admitted as between the parties to any
such instrument or their representatives in interest for the purpose of
contradicting, varying, adding to, or subtracting from its terms subject to the
following provisions:

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(a) any fact may be proved which would invalidate any document or
which would entitle any person to any decree or order relating thereto;
such as fraud, intimidation, illegality, want of due execution, want of
capacity in any contracting party, the fact that it is wrongly dated, want or
failure of consideration, or mistake in fact or law;
(b) the existence of any separate oral agreement, as to any matter on
which a document is silent and which is not inconsistent with its terms,
may be proved; in considering whether or not this proviso applies, the
court shall have regard to the degree of formality of the document;

EVIDENCE ACT
Exclusion of evidence of oral agreement
(Section 94 Continued)

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(c) the existence of any separate oral agreement constituting a condition

precedent to the attaching of any obligation under any such contract,
grant or disposition of property, may be proved;
(d) the existence of any distinct subsequent oral agreement, to rescind
or modify any such contract, grant or disposition of property, may be
proved except in cases in which such contract, grant or disposition of
property is by law required to be in writing, or has been registered
according to the law in force for the time being as to the registration of
documents;
(e) any usage or custom by which incidents not expressly mentioned in
any contract are usually annexed to contracts of that description may be
proved; except that the annexing of such incident would not be
repugnant to or inconsistent with the express terms of the contract;
(f) any fact may be proved which shows in what manner the language of
a document is related to existing facts.

EXCEPTIONS
When extrinsic evidence outside of the written contract may be
allowed under English Common Law:

Mistake, misrepresentation or lack of consideration which

challenges the validity of the contract

Mistake in the terms of the written contract

Proof that written contract has not yet come into existence or
was no longer in existence.

Extrinsic evidence to show custom of trade

Recall: Collateral contracts?

Do these exemptions still apply in Singapore?

See Sections s2(2) Evidence Act
China Insurance Co (Singapore) Pte Ltd v Liberty Insurance
Pte Ltd (2005)

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APPROACH TOWARDS
CONTRACTUAL
INTERPRETATION
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &
Construction Pte Ltd [2008] 3 SLR 1029; [2008] SGCA 27, See
[125] [132]
Two main issues:

What extrinsic evidence is admissible in aid of contractual

interpretation?

In what way is the task of interpretation to be carried out?

Contextual approach [Section 94(f) of the Evidence Act]

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Is ambiguity a pre-requisite for the courts consideration of

extrinsic materials? See paragraph [132] for the summary of the
approach used by the Singapore courts to admit extrinsic evidence.

TERMS

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PRE-CONTRACTUAL
STATEMENTS/
STATEMENTS MADE
DURING
NEGOTIATIONS

TERMS, REPRESENTATIONS
OR MERE PUFF
Contracts arise from negotiations. Statements made by the
parties in the midst of negotiations may be:
Mere puff

Representations

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A false representation may give rise to liability for

misrepresentation.
Terms of the contract

TERMS, REPRESENTATIONS
OR MERE PUFF
How do you determine whether something was term or a
representation?
Depends on the intentions of the parties

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Question of fact which must be examined on the facts of

the situation
Objective determination whether the parties intend the
statement in question to be a representation or a term

TERMS, REPRESENTATIONS
OR MERE PUFF
Issues to Consider:
Event

Representation
or Term?

Case

Requests for the other party to

make independent verification

Is the statement so important that

the party would not have entered
into the contract but for the
statement having been made?

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Statement asserting a feature of

intrinsic significance in relation to
the subject matter

TERMS, REPRESENTATIONS
OR MERE PUFF
Issues to Consider:
Event

Representation
or Term?

Requests for the other party to

make independent verification

Likely
Ecay v Godfrey (1947)
Representation contrast with Schawel v
Reade (1913)

Is the statement so important that

the party would not have entered
into the contract but for the
statement having been made?

Likely Term

Bannerman v White (1861)

Statement asserting a feature of

intrinsic significance in relation to
the subject matter

Likely Term

Darwish M K F Al Gobaishi
v House of Hung Pte Ltd
(1995), SGHC

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Case

TERMS, REPRESENTATIONS
OR MERE PUFF
Issues to Consider:
Event

Representation
or Term?

Case

Timing of the Statement

How recent was the statement
made?

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Where parties have already put

their agreement in writing, but there
were oral statements made during
the pre-contractual negotiations

TERMS, REPRESENTATIONS
OR MERE PUFF

Event

Representation
or Term?

Case

Timing of the Statement

How recent was the statement
made?

Shorter the
time frame
the more likely
itll be held to
be a term?

Routledge v McKay (1954)

Likely
Where parties have already put
their agreement in writing, but there representation
were oral statements made during
the pre-contractual negotiations

Normally such oral

statements would have
been inadmissible under
the Parole Evidence Rule
However, consider Zurich
Insurance.

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Issues to Consider:

TERMS, REPRESENTATIONS
OR MERE PUFF
Common Situations
Event

Representation
or Term?

Case

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Statement made by or to a person

with special skills or knowledge

TERMS, REPRESENTATIONS
OR MERE PUFF
Common Situations
Event

Representation
or Term?

Case

Statement made by or to a person

with special skills or knowledge

Depends on
who was
making the
statement and
to whom such
statement was
made

Oscar Chess Ltd v Williams

(1957)

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Contrast with Eian Tauber

Pritchard v Peter Cook
(1998) Where parties
regard the statements/
representations as
important to the contract

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Dick Bentley Productions

Ltd v Harold Smith (1965)

TERMS, REPRESENTATIONS
OR MERE PUFF
Ultimately, the facts of each situation should be examined.
It depends on the intentions of the parties, as objectively
ascertained.

Implications of finding a statement to be a term vs a

representation?

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Term: Breach
Representation: Remedies relating to misrepresentation
applies (Misrepresentation Act)

TERMS

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RELATIVE
IMPORTANCE OF
TERMS

WARRANTIES, CONDITIONS
AND INNOMINATE TERMS

Varying degrees of importance attached to terms of a contract

Has implications on remedies available to the innocent party when

the term is breached
Conditions

Warranties

Claims of damages for losses suffered

Choice of whether to terminate the contract
Claims of damages for losses suffered
No termination

Innominate Terms

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Remedy available depends on the nature and the

consequence of the breach
Has it deprived the innocent party of substantially the
whole of the benefit he is intended to receive under the
contract?
Does it result in relatively trivial consequences?

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WARRANTIES, CONDITIONS
AND INNOMINATE TERMS
When would something be treated as a Condition?
Parties are free to agree expressly that a particular term in
a contract will be regarded as a condition

Note: Courts may however hold that parties, when

describing the term as a condition, did not intend its
technical meaning L Schuler AG v Wickman Machine
Tool Sales Ltd (1974)

Does the term go to the root of the contract? Does the

non-performance of the obligation impair the substance of
the bargain expected by the innocent party?

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Contrast Poussard v Spiers (1876); and

Bettini v Gye (1876)

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WARRANTIES, CONDITIONS
AND INNOMINATE TERMS
Approaches to classification of terms:

Traditional English Conditions-Warranty Approach

The Hong-Kong Fir Approach: Focus on the nature and the
consequences of the breach of the term

Conditions
Warranties
Innominate Terms :
Parties had not explicitly characterized them as
conditions
However, it could result in both serious as well as trivial
breaches. some breaches of which would deprive one
party of substantially the whole benefit contemplated by
the parties to be derived from the performance of the
contract, but other breaches would not. Could operate
either as a condition or warranty depending on the nature
and consequences of the breach.

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha Limited [1961] EWCA Civ

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WARRANTIES, CONDITIONS
AND INNOMINATE TERMS
Singapores Position:
RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd (2007); qualified by
Sports Connection Pte Ltd v Deuter Sports GmbH (2009)

Attempts to reconcile the traditional Conditions-Warranty Distinction

with the Hong Kong Fir Approach

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(1) To give effect to the intentions of the parties If parties have

intended that a contractual obligation was to have the force of a
condition
(2) If the term is however a warranty it may not prevent a person
from terminating the contract
Consequences of the breach should also be examined EVEN IF
the term breached was only a warranty
If the consequences of the breach are such as to deprive the
innocent party of substantially the whole benefit that it was
intended that the innocent party should obtain from the contract
then the innocent party would be entitled to terminate the
contract, not withstanding that it only constitutes a warranty.

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WARRANTIES, CONDITIONS
AND INNOMINATE TERMS
Singapores Position:
RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd (2007); qualified by
Sports Connection Pte Ltd v Deuter Sports GmbH (2009)

This however only applies as an extremely limited exception

Where the term itself states expressly (as well as clearly and
unambiguously) that any breach of it, regardless of the seriousness
of the consequences that follow from the breach, will never entitle the
innocent party to terminate the contract, then the court will give effect
to this particular type of term (viz, a warranty expressly intended by
the parties).

Ultimately, the inquiry is on ascertaining the intentions of the

contracting parties in light of the surrounding circumstances Man
Financial (S) Pte Ltd v Wong Bark Chuan David (2008)

Other facts which may be taken into account

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WARRANTIES, CONDITIONS
AND INNOMINATE TERMS
Consider the facts of
Sports Connection Pte Ltd v Deuter Sports GmbH (2009)

Deprived substantially the whole benefit

What exactly constituted the benefit it was intended that the innocent
party should obtain from the contract?
The actual consequences of the breach that had occurred at the time
the innocent party purported to terminate the contract.
Justification based on the facts

Man Financial (S) Pte Ltd v Wong Bark Chuan David (2008)

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TERMS

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IMPLIED TERMS

INTRODUCTION
Parties may not have expressly stated some terms as part of the
contract, but terms may nonetheless be implied in certain cases:
Terms implied in fact

Business Efficacy Test

Officious Bystander Test
Terms implied in law
Terms implied by statute

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Terms implied by custom

TERMS IMPLIED IN FACT

It is a term that the parties would have agreed to
had they thought about it.
The threshold is one of necessity and not just
reasonableness.

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Fact dependent

TERMS IMPLIED IN FACT

Tests for implying terms in fact
Officious bystander test a term must be so
obvious that it would not admit possible
disagreement
Shirlaw v Southern Foundries (1926) Ltd
The Moorcock (1889)

Business efficacy test a term must be

necessary to inject business efficacy to the contract

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BP Refinery (Westernport) Pty Ltd v Shire of

Hastings (1977)

TERMS IMPLIED IN LAW

Terms which are implied because they are
necessarily incidental to that type of contract
taken for granted in all contracts of the class
without the necessity of formal expression
unlike terms implied in fact
Accordingly, courts are highly cautious about
implying terms in law

Default terms

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Liverpool City Council v Irwin (1977)

Malik v Bank of Credit & Commerce International SA
(1998)

TERMS IMPLIED BY
STATUTE
A statute may imply terms in a particular type of contract.
Rationale is often based in public policy.

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i.e. Sale of Goods Act

Section 12(1) SGA: implies a condition that seller ahs
a right to sell the goods
Section 12(2) SGA: implies a warranty that goods are
free from charges or encumbrances in favour of third
parties
Section 13(3) SGA: condition that goods sold by
description will correspond with their description
Section 15(2) SGA: condition that goods sold by
sample will correspond with their sample

TERMS IMPLIED BY
CUSTOM
In particular trade practices, a party will be bound by
the usage in the trade if the usage is well-known,
certain, reasonable and legal.
Uniformity of custom and acceptance by relevant
community is crucial

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Such implications are rare. Why?

EXEMPTION CLAUSES

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EXEMPTION
CLAUSES

INTRODUCTION

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What are exemption Clauses?

Incorporation
For an exemption clause to be valid, it must be
properly incorporated into the contract.
Construction
How is such a clause to be construed or interpreted?
Statutory Limitations
Are there any statutes or reasons by which the
operation of the clause may be restricted or
excluded?
Exception Clauses and Consumer Protection Legislation
in Singapore

WHAT ARE EXEMPTION

CLAUSES?
Terms that seek to exclude or limit the liability of one
of the parties in the event of a breach of contract
Three common types
Exclude liability
Limit liability
Indemnity Clauses which seek to transfer liability
Freedom of Contract v.s. Interference by the Courts

Why and when do the courts interfere?

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EXEMPTION CLAUSES

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INCORPORATION OF
EXEMPTION
CLAUSES

INCORPORATION
By Signature
By Notice

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By Previous course of dealing

INCORPORATION BY
SIGNATURE
General Position: Person bound by signature, deemed
to have read and understood the terms - LEstrange v
Graucob (1934)

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Exceptions:
Non est factum vulnerable persons
Express overriding terms in the contract
Misrepresentation as to the nature of the
document signed - Curtis v Chemical Cleaning
& Dyeing Co (1951)
Collateral Contract - Evans (J) & Son
(Portsmouth) Ltd v Andrea Merzario Ltd (1976)

INCORPORATION BY
NOTICE
General Position: The exemption clause may be
incorporated where
the other party knew or ought to have known that
the document was one which could be expected to
contain such terms, and

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he has done everything reasonable to give

sufficient notice of the exemption clause to the
other party Parker v South Eastern Railway Co
(1877)

INCORPORATION BY
NOTICE
What is reasonably sufficient notice?
Type of document

Chapelton v Barry Urban Development Council (1940)

Time of notice

Olley v Marlborough Court Hotel Ltd (1949); Thornton v

Shoe Lane Parking (1971)

Adequacy of notice

Thomson v London, Midland and Scottish Rly (1930);

Geier v Kujawa, Weston & Warne Bros (Transport) Ltd
(1970)

Effect of the clause

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Interfoto Picture Library v Stiletto Visual Programmes Ltd

(1988)

INCORPORATION BY
PRIOR DEALINGS
General Position: Where there has been a consistent
and sufficiently regular previous course of dealing and
those prior contracts contained such exemption
clauses
Spurling v Bradshaw (1956)

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Hollier v Rambler Motors (AMC) Ltd (1972)

EXEMPTION CLAUSES

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CONSTRUCTION OF
EXEMPTION
CLAUSES

CONSTRUCTION
Different approaches may be used in
construction

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Contra proferentum Rule

Rules in cases of negligence liability
Doctrine of fundamental breach

CONTRA
PROFERENTUM RULE
Contra Proferens against the maker
Contra proferentum rule: If there is ambiguity or doubt, the
exemption clause would be interpreted in a manner least
favourable to the person who has inserted them into the
contract and who is now seeking to rely on it.

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Houghton v Trafalgar Insurance Co (1954)

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd and
Securicor (Scotland) Ltd (1983)
Is there a difference the application of the contra
proferentum rule where the clause is seeking to limit
liability rather than to provide for a total exclusion of
liability?

NEGLIGENCE
LIABILITY
Where a party seeks to rely on an exemption clause to
escape from the liability arising out of his own negligence
Clear words showing that the clause fully cover the facts
are needed. Where words do not clearly cover negligence
courts may hold that exemption clause inapplicable

White v John Warrick & Co Ltd (1953)

Hollier v Rambler Motors (AMC) Ltd (1972)

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See the guidelines set out in Canada Steamship Lines Ltd

v R.
See also the Unfair Contract Terms Act (UCTA) on
attempts to exclude or limit liability for negligence

DOCTRINE OF
FUNDAMENTAL BREACH
Can an exemption clause defeat the main purpose for which
the contract was entered into?
Rule of Law vs Rule of Construction
A matter of construction it should always be a question of
facts involving the interpretation of the contract.

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Suisse Atlantique case; Confirmed by Photo Production Ltd v

Securicor Transport Ltd (1980)

EXEMPTION CLAUSES

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STATUTORY
LIMITATIONS

STATUTORY LIMITATIONS ON
USE OF EXEMPTION
CLAUSES
Unfair Contract Terms Act (Chapter 396)
Deals with unfair exemption clauses with seek to
limit/exclude liabilities An Act to impose further limits on
the extent to which civil liability for breach of contract, or
for negligence or other breach of duty, can be avoided by
means of contract terms and otherwise.
Applies to consumer contracts and certain tort situations
(non contractual)
Categories of excluded contracts: First Schedule; Section
26 of the UCTA

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Consumer Protection (Fair Trading) Act

UNFAIR CONTRACT
TERMS ACT

Negligence Liability (s2 of UCTA)

Test of reasonableness
Imposing upon a customer a duty to indemnify the other
party for liability arising out of the partys negligence or
breach of contract (s4 of UCTA)

Test of reasonableness
Sale of consumer Goods (s5 of UCTA)

Hire purchase (s6 of UCTA)

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Cannot exclude or restrict liability for death or injury resulting

from negligence (s2(1))
Other losses of damages term or notice must satisfy
requirement of reasonableness (s2(2))
Standard Term Contracts/ Contracts with consumers (s3 of
UCTA)

UNFAIR CONTRACT
TERMS ACT

See Section 11 of UCTA on test of reasonableness; Read with

Second Schedule
11.(1) In relation to a contract term, the requirement of
reasonableness for the purposes of this Part and section 3 of
the Misrepresentation Act [Cap. 390] is that the term shall have
been a fair and reasonable one to be included having regard to the
circumstances which were, or ought reasonably to have been,
known to or in the contemplation of the parties when the contract
was made.

See Section 12 of UCTA on when a party deals as a consumer in

relation to another party

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(Note: Print a copy of the UCTA)

SECOND SCHEDULE,
UCTA
GUIDELINES FOR APPLICATION OF REASONABLENESS TEST
The matters to which regard is to be had in particular for the purposes
of sections 6(3) and 7(3) and (4)are any of the following which appear to be
relevant:

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(a) the strength of the bargaining positions of the parties relative to each
other, taking into account (among other things) alternative means by which
the customers requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in
accepting it had an opportunity of entering into a similar contract with other
persons, but without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known of the
existence and extent of the term (having regard, among other things, to
any custom of the trade and any previous course of dealing between the
parties);
(d) where the term excludes or restricts any relevant liability if some condition
is not complied with, whether it was reasonable at the time of the contract
to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the
special order of the customer.

CONSUMER PROTECTION
(FAIR TRADING) ACT

Applies to consumer transactions protects consumers against

unfair practices of suppliers of goods and services

Definitions of consumer and consumer transactions in s2 of the

CPFTA

What are the relevant unfair practices: s4 of the CPFTA

Remedies available
S6(1): Right to sue the supplier

Common law remedies of damages, specific performance,

cancellation etc.; as limited or prescribed by the statute

S11(1): Right to cancel certain contracts within a cancellation

period
S12: Limitation period for consumers bringing court actions
S13: Suppliers cannot contract out of the contract
S15(1): Rights are in addition to any other rights or remedies
that the consumer may have apart from the Act

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END - WEEK 4
SUMMARY
What are terms?
Express or Implied Terms
Terms v.s. Representation
Incorporation
Parole Evidence Rules

Relative Importance of Terms

How are terms implied in contracts?
Exemption Clauses

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Statutory Limitations