Contract Law Contractual Terms
The terms of a contract are its content, and they define the rights and obligations arising from the contract. Contractual terms may be expressed or implied.
Express terms are those specifically laid down by the contract, and they consist of expressed, oral or written statement made by the parties.
Implied terms are those which are not specified in the contract but which are implied either (i) by statute, or (ii) by custom, or (iii) by the court.
Express Terms
A contract may be (i) purely written, (ii) purely oral (iii) partly written and partly oral. Generally, no formality is required for a term, whether oral or in writing (or partly orally or partly in writing), to form part of a contract.
If the terms of a contract are in dispute, a court will determine what terms were decided on by the parties. In respect of oral contracts, precise evidence may be required in order to clarify exactly what the terms of the agreement were, as the dispute may turn on very fine details.
Proof of terms
Oral Contracts- Terms and representation
Statements made by parties can be categorized as (i) promises or (2) mere representations.
Except in the case of simplest transactions, there will generally be a period of negotiation before the final terms of the contract are agreed. Promises (sometimes called “warranties”) made during negotiations and not withdraw will generally form part of an oral contract and are therefore binding. An action for damages will lie for breach of these terms.
However, there are some statements (often referred to as mere “puffs”) which cannot be relied upon as terms of the contract because they are imprecise or were not meant to be taken laterally. The courts must determine the category into which the statement fits.
The distinction between each type of statement is important as, on the one hand, the breach of promise (which is a binding term) gives rise to the usual remedies for breach of contract (that is, damages or recession). On the other hand failure to conform to a mere representation, though in some circumstances giving the right to rescind the contract, will not be remediable by damages unless the representation was deliberately false (fraudulent), or made negligently in which case actions in tort for damages will lie.
Since the question of whether a statement is a contractual term (warranty) or mere representation is a question of law, and not fact, the issue is one for the court to decide.
In making the determination the court will take various factors into account, including:
1) Importance of the truth of the statement (Bannerman v White).
2) The length of time which had passed between the making of the statement and the final agreement (Routledge v McKay).
3) Whether the party making the statement was better placed than the recipient of the statement to better verify the truth (Dick v Harold).
4) Whether the contractual terms are later put in the written agreement (Heilbut, Symons v Buckleton)
5) The key factor in determining whether a statement is term is was laid down in Heilbut, Symonds v Buckleton, the test is whether there is evidence of an intention (animus contrahendi [intention to conclude]) by one party or both parties that there should be contractual liability in respect of accuracy of statement.
In Oschar Chess Ltd v Williams, a car sales man sold a second hand car to a purchaser, in the honest belief, based on reasonable grounds, that it was a 1948 model. This belief was based on the fact that the date of the car included in vehicle registration book was 1948. It was held that
in producing the registration book, the sales man did not intend himself so as to warrant the accuracy of the statement that was in the book.
By contrast, in Dick v Harold, a car sales man sold a car on the basis that milometer showing that the vehicle had driven 20,000 miles, when in fact it had driven 100,000 miles. It was held to have warranted the truth of the statement, thereby binding himself contractually.
Thus a statement will only be a term of the contract if the party making intended make himself contractually liable for truth of the statement; the court will also consider the totality of the evidence.1
Lord Denning per Oschar Chess Ltd v Williams, noted in part,
“… the best expressed ruling of Lord Holt, “was it intended as a warranty or not? In applying Lord Holt’s test, some misunderstanding has arisen as to the word ‘intended’. It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended.
This is a mistake. Lord Moulton made is quite clear that, “The intention of the parties can only be deduced from the totality of the evidence. The question of whether a warranty was intended depends on the conduct of the parties, on their words and behavior, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended would suffice.”
Written Contracts
In the case of a written contract it is the duty of the court to interpret their terms. This is a matter of law for the court,2 the court will not be obligated to incorporate into its interpretation, for example, concessions made by the parties about the meaning of the contract (Bahamas International Trust Co Ltd v Threadgold).
1 Note- the effect of a warranty which only gives right to damages; while breach of a vital condition can terminate the contract.
2 Bentsen v Taylor, Sons & Co
Signature
It is a fundamental principle that parties are bound by the content of the written contract and cannot seek to amend or add to its terms after the fact. Once an agreement is signed, a party cannot use the fact that he or she did not read the terms, as to avoid liability under the contract.
In L’Estrange v Graucob Ltd, the plaintiff purchased a slot machine, in so doing he signed an order form, and it contained fined prints. Upon delivery of the machine the plaintiff found that it was not functioning properly and brought an action on the said basis.
The court held that since the plaintiff had signed the agreement, the disputed term was valid. It was immaterial that the plaintiff had not read the terms.
Notably, following the decision in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, where a contract contains particularly onerous or unusual printed terms, the party seeking to enforce such terms must prove that they were brought to the other party’s attention.
Parole Evidence Rule
There is a presumption that the written document contains all the terms of the contract, but the presumption is rebuttable evidence that the parties did not intend the written document to be exclusive, but wished it to be read in conjunction with oral statements. This is known as the parole evidence rule. The rule has been described in the following terms:
It is firmly established rule that parole evidence cannot be admitted to add to, vary or contradict a deed or other written instrument… parole evidence will not be admitted to prove that some particular term, which has been verbally agreed upon, had been omitted (by design or otherwise) from a written instrument constituting a valid and operative contract.
The essence of the rule is that it prevents a party from adducing evidence which is extrinsic to a written contract. In Hawrish v Bank of Montreal, a lawyer acting for a company agreed to guarantee ‘all present and future debts’ of the client company, up to £6,000. The lawyer later
adduced evidence to show that the parties intended for guarantee to apply to an overdraft facility of the company, and not all of its debts. It was held that the lawyer’s evidence was inadmissible.
Parole evidence is also admissible where, a signed document makes reference to another document, they will both be read together (Elias v George Sahely & Co). Where it is found that the presumption in parole evidence rule has been rebutted, terms which are extrinsic to the written contract, will be deemed to have been included in the written agreement. This is called rectification. Rectification is also available to amend a written contract where it was executed under a common mistake.
Collateral Contracts,
Collateral contracts are secondary contracts which are enforceable as independent agreements, separately from a primary contract. They tend to invoke and enforce promises made in exchange for the entry into the primary contract.
In Shanklin Pier v Detel Products Ltd, where A (painter) contracted with B (employer and seller) to paint a pier, and B induced A to choose a paint made by B, it was held that there were two contracts. In addition to the contract with which B agreed to paint the pier, there was a collateral contract A agreed to use B’s paint, in exchange for a guarantee that the paint was suitable for the pain job.
Conditions
A condition is a term in a contract which the parties regarded as essential, in respect of which one party promises to perform an obligation, or promises the accuracy of a statement. In the event of a breach of a condition, the innocent party is entitled to rescind the contract, treating himself as discharged from further performance. This is so, even if the innocent party has not suffered any loss because of the breach. The innocent party may also affirm the contract if he so
chooses. In addition to the right to rescind or affirm the contract, the innocent party may in either case claim damages for any losses suffered.
In Locke (JR) v Bellingdon Limited, The Barbados court of Appeal held that failure by the plaintiff, Locke, to pay a deposit for the purchase of commercial property, amounted to a repudiatory breach entitling the defendants to treat the contract as being at an end.
Simmons CJ stated the court’s ruling and explained the decision as follows:
Repudiation is a drastic action which should only be held to arise in clear cases of a refusal to perform contractual obligations, where the matter goes to the root of the contract. In considering whether there has been repudiation of a contract by one party, which is a question of fact, it is necessary to examine that party’s conduct as a whole and ask the question: ‘does the conduct indicate an intention to refuse performance of the contract or abandon the contract?’ Clearly the conduct of the repudiating party must be judged objectively. The guiding principle is enunciated by Lord Coleridge CJ in Freeth v Burr. The Lord Chief Justice said, and it is still law: “In cases of this sort, where the question is whether the one party is set free by the acts or the conduct of the other do or do not amount to an intimation of an intention to abandon and all together to refuse performance of the contract.
It is all a matter of construction. The court must construe the language of the contract and the circumstances of the case to see whether there was renunciation of the contract- the entire circumstances of the case must be looked at.
For conduct to be characterized as repudiatory, the breach or threatened breach must go to the root or core of the contract and it follows that a threatened or anticipatory breach will amount to repudiation if it relates to a fundamental term going to the root or core of the contract.
On appeal, in order to determine whether the deposit was a fundamental term going to the root of the contract, the starting point must surely be to assess the nature of the deposit. It seems to us that a deposit is the security for the completion of the contract and a guarantee for
performance. If that is so, it would seem axiomatic that it is an essential stipulation going the root of the contract and a breach of it would entitle the innocent party to treat the contract as at an end.
In Woodar Investments Development Ltd v Wimpey Construction UK Ltd, the plaintiffs agreed to sell 14 acres of land to the defendants. The completion date was set at 2 months after the granting of planning permission or another fix date, which ever was earlier. The market became unfavourable to the defendants and they sought to rescind the agreement which was a right allowed for by the agreement but in circumstances which did not exist. The defendants honestly believed that they were entitled to rescind. The plaintiffs claimed that the conduct of the defendants amounted to repudiation. The House of Lords held that the defendants’ conduct did not amount to repudiatory breach because a party who took action relying simply on the terms of the contract in question and not manifesting by his conduct an ulterior intention to abandon it was not to be treated as repudiating it.
Woodar in fact shows the kind of good faith conduct that does not amount to repudiation. In that case there was no finding of fact as to repudiation. What the parties did was to bring an action for the interpretation of contract.
Stipulation as to time are not ordinarily construed so as to make time of the essence, and so breach of contractual deadline will not generally be a fundamental breach.3 However, where time is specified in the contract, as being of the essence,4 or where the court considers that the parties must have intended time to be of the essence, such a failure to meet a deadline will amount to a fundamental breach.
A party making a contract may serve notice making time of the essence after entering into a contract, where the other party is in default. However, he cannot do so if he himself is also in default. In Chaital v Ramlal (Privy Council), M, the vendor in a contract for the sale of land, could not serve notice on the prospective purchaser, R, because he was in default of an obligation to supply R with certain information.
3 Sale of Goods Act (Jamaica)
4 Steadman v Drunkle
Types of conditions:
Five (5) types of conditions-
Promissory conditions
Contingent conditions
Condition Precedent
Conditions subsequent
Conditions to be satisfied concurrently
1) Promissory conditions . A condition may be “promissory” in the sense that it is a promise by one party to perform (or procure the performance) of an obligation. Failure to do so will entitle the innocent party to treat the contract as being at an end and, if he suffers loss, to sue for damages for such loss.
2) Contingent Conditions . Contingent conditions may be contrasted with promissory conditions.
These are obligations which do not arise until the occurrence of a particular event. Until that event has taken place, the obligation of one or all the parties will remain suspended (Trans Trust SPRL v Danubian).
3) Condition precedent . Generally, a condition precedent is a condition, the fulfillment of which is required in order for the agreement to come into effect.
Where a condition precedent fails to be satisfied, (1), it may suspend the parties’ rights and obligations under the agreement;5 (2), one party may be bound to unilaterally to perform an obligation, subject to a condition, although the agreement is not yet bilaterally binding on until the condition is satisfied;6 (3), the contract may become binding, but rights and obligations under the contract are suspended until a specifies condition is met.
5 Pym v Campbell (1856) 6 E & B 370
6 Smith v Butler [1990] 1 QB 694
The parties are at liberty to draft (or, if oral, to finalize) their agreement to provide that a condition precedent has a particular effect. For example they may wish for ancillary obligation under the agreement to be effective notwithstanding the transaction contemplated by the agreement cannot proceed for failure to satisfy a condition precedent.
Typical examples of this type of provision are confidentiality provision and further assurance clauses.
4) Condition Subsequent . A contract that becomes immediately binding on agreement of the final terms may provide for (1) termination of the agreement (or termination of some or all the terms of the agreement), or (2) the ability of the parties to treat the agreement as being at an end, if certain conditions are met, or fail to be met, after the contract has come into effect. These provisions are conditions subsequent.
In Head v Tattersall, thus, where X agreed to buy a horse from Y, it was a term of the contract that the horse had been in Bicester Hunt, and if this condition turned out to be untrue, X would have until a specified day to return the horse. It was found after completion of the contract and delivery of the horse that the horse had not in fact been in the Bicester Hunt and it was held that X was entitled to return the horse and recover the purchase price. This was so notwithstanding that the horse had sustained injury while in X’s possession (through the fault of X).
5) Conditions to be satisfied concurrently . Concurrent conditions are conditions which are to be performed at the same time or conditions each of which is dependent on the other. An example of concurrent conditions is to be found in contracts for the sale of goods, where (1) the delivery of goods and (2) the payment of those goods are concurrent conditions.
Warranties
The word warranty is used in a wide variety of circumstances, including in the context of proof of terms, where it is intended to connote a binding contractual term (which is generally contrasted with a mere representation which is non-binding). On the other hand the word ‘warranty’ in its
technical sense relate to the classification of terms rather than proof. It is used to distinguished one binding term (warranties) from another (conditions or intermediate terms).
The essential feature of a term is that it is a subsidiary, non-essential term, breach of which only gives rise to an action for damages by the innocent party. In insurance law, ‘warranty’
sometimes means an essential term. Breach of warranty entitles the innocent party to damages only (Hong Kong Fir Shipping Co Ltd v Kawasaki Kaisha Ltd).
Intermediate (innominate) Terms
Where there was a breach, the strict classification of conditions and warranties would allow a non-defaulting party to treat the contract as being at an end, even where the party had not suffered any significant losses, this was perceived as an abuse of the classification.
The court therefore developed a more flexible approach to the classification of terms, encouraging performance7 by limiting the circumstances in which a non-defaulting party can treat the contract as at an end.
Unless specifically agreed by the parties or determined by legislation, breach of an intermediate term entitles the innocent party to treat the contract as being at an end only if the breach has caused the innocent party to be substantially deprived of the whole benefit intended for him under the contract.
Principles in applying the classification of terms
Sale of Goods legislation defines certain implied terms as either conditions or warranties.8 The parties may also designate a term as a condition (or a condition precedent), warranty or intermediate term. Where they do so, this designation will generally be respected by the court.
For example, in the case of a breach of a condition, that breach, however small, will give rise to a
7 Cehave NV v Bremer [1976] QB 44
8 S 11
right to repudiate, unless such a construction produces a result so unreasonable that the parties could not have intended it, and if there is some other possible and reasonable construction.
Exemption and Limitation Clauses
An exemption or exclusion clause is an express contractual term which seeks to exclude or limit contractual or tortuous liability of one of the parties under the contract. The exclusion of or limitation on liability can relate to exclusion of terms implied by the court, by statute or by custom or to statements made during negotiation or before entry into the agreement.
The common law rules governing exemptions clauses are stated below.
Standard form Agreements
Exemption clauses are often found in standard form contracts, such as contracts made subject to the printed terms drawn up by one of the parties. Examples include the “conditions of carriage”
in airline tickets, or “terms and conditions” in mobile phone contracts. Standard form contracts are increasingly common, and the average person may enter into these contracts without ever having negotiated these terms.
From a consumer’s perspective in particular, he is rarely in a position to negotiate, question or vary these terms.
Typical examples of exclusion clauses in contracts for the sale of goods are clauses excluding all sales and conditions and warranties, whether express or implied, and excluding liability for misrepresentation.
Limitation clauses are clauses which cap the liability of a party with reference to a set monetary limit or a formula for determining a set monetary limit (for example, ‘Party A’s liability shall not exceed $1000’, or ‘Party A’s liability shall not exceed the purchase price’).
Exemption clauses must be part of a contract.
Sufficiency of notice
In the case of signed contracts, parties will generally be bound on the basis that they are deemed to have understood and agreed to those terms on signature.
Where a party signs a contractual document containing an exemption clause, the clause is binding on the signatory whether or not he read it and understood it (Parker v South Eastern Railway).
In case of exemption clauses which are not part of a signed document, the essential ingredient for the clause to be binding is notice. Only if the party had notice of a term can it be said they agreed to it.
Principles governing what constitute valid notice :
The question of timing of notice of an exemption clause is important in determining whether it can be said to be incorporated into the contract between the parties.
An exemption clause is not binding unless it was brought to the attention of the other party before the contract was made.
Thus, an exemption clause printed on a receipt for money will not be valid as a receipt is not a contractual document (Chapelton v Barry).
Similarly, in Olley v Marlborough Court, P arrived at a hotel and filled out the usual forms at the reception desk, paying for a week’s stay. On reaching the bedroom, P say a notice on the wall stating that the hotel would not be liable for articles lost or stolen unless handed to the manager for safekeeping. P’s fur coat was stolen, and P sued the hotel, which sought to rely on the clause to be exempted from liability. The question to be decided was whether the defendant hotel, was protected by notice in the plaintiff’s bedroom.
It was held that the hotel could not rely on the clause, as it was not brought to P’s notice until after the contract had been made at the reception desk. Denning LJ, noted in part:
The first question is whether that notice formed part of the contract. People who rely on a contract to exempt themselves from their common law liability must prove that contract strictly. Not only must the terms of the contract be clearly proved, but also intention to create legal relations- intention to be legally bound- must also be clearly proved. The best way of proving it is by: i) a written document signed by the party to be bound. ii) Another way is by handing him, before or at the time of the contract, a written notice specifying certain terms and making it clear to him that the contract is in those terms. iii) A prominent public notice which is plain for him to see when he makes the contract would, no doubt have the same effect, but nothing short of one of these three ways will suffice.
It is also settled that where a similar exemption clause has been included in previous dealings between the parties, the clause will be binding, since the party against whom the clause was inserted would be deemed to have had notice of it (Spurling v Bradshaw).
Types of Exemption clause:
1) Liability for negligence
An exemption clause purporting to exempt liability for negligence must be adequate. In Olley v Marlborough Court, reaffirms this principle and demonstrates that even where a clause purporting to exempt the defendant from liability for negligence has been brought to the parties’ attention, the exemption clause must be sufficiently clear on the face of the contract.
2) Liability for misrepresentation.
Where seeking to rely on an exemption clause has misrepresented the meaning or the extent of the clause, then it will not be binding on the representee.
3) Unreasonable Clause
Standard form contracts containing terms which are non-negotiable are increasingly common. As a general rule, where a contract contains terms that are unusually unreasonable or burdensome to perform, special steps must be taken to bring those terms to the notice of the party who did not draft those terms (Interfoto Pictures Library Ltd v Stiletto).
Interpretation of Exemption clauses.
1) Unequal bargaining power.
In cases of unequal bargaining power, where one party indicates the terms to another, the courts have tended to curtail the exclusion of the liability wherever possible, except where to do so would clearly violate accepted principles of contractual interpretation.
In Boyack & McKenzie Ltd v Lock Joint American, D subcontracted work to P for road reinstalment. There was inclusion of an exemption clause in the agreement to the effect that D could stop, suspend or delay work related to acts or orders of government. D later performed the road reinstalment work himself depriving P of the opportunity and profit of the same.
Held, D’s interpretation of the contract was incorrect, if the defendant wanted the clause to have the purported effect, it should have used clear and precise language; in the absence of such language D will be held liable for breach of contract. The court disapproved of the defendant’s attempt to rely on the exemption clause, particularly because of the balance of the bargaining power lay distinctly in its favour. Rees J said, In situation as these ‘’the courts have tended to set their faces against the exclusion of liability, and so far as rule of construction allow, to confine the operation of exemption clauses within the narrowest limits.
2) The “fundamental breach” doctrine and exemption clauses.
The current position is that a party may be deprived of the benefit of an exemption clause only where that was the intention of the parties. The essence of the principle is
that where the defaulting party committed a breach which is arguably within the scope the scope of an exemption clause, the question of liability or otherwise of that party for the breach will be a question of the interpretation of the contract. This is so, even where the breach is fundamental in nature. The parties are free to agree that liability for a breach (whether fundamental or otherwise) may be absolved under an exemption clause.
By the same token, the court in interpreting a contract may find that the parties could not have intended that a defaulting party should be absolved from liability by virtue of an exemption clause.
In Photo Production Ltd v Securicor, Lord Diplock drew a distinction between (1) primary obligations (such as terms of a contract) and (2) secondary obligations (such as liability to pay damages for breach). He held that the parties to a contract are free determine their primary obligations in order to fix their secondary obligations, and that therefore they can choose to govern their liability after termination. On this basis, it is for the parties to determine whether an exemption clause operates to relieve a party of liability for fundamental or non-fundamental breaches.
In apply these principles, three questions are helpful in determining whether a defaulting party can rely on an exemption clause to exonerate him from liability for breach (whether fundamental or otherwise).
i) Did the parties intend to be bound by an exception clause?
ii) Is the clause effective? –was it properly incorporated into the contract and are the terms reasonably clear and precise?
iii) Do the terms of the exemption clause as drafted cover the breach or fundamental breach in question. Or is the breach so serious and so fundamental that the parties could not have intended for the clause to exempt the parties for the breach?
In Bevad Ltd v Oman Ltd, the Jamaican Court of Appeal held that the vendor in a contract for the sale of land could not rely on an exemption clause purporting to exclude all conditions, warranties and representations, whether implied or express, on account of the fact that he had fraudulently misrepresented that planning permission for the development of land had been obtained, when it had not.
Similarly, where X bought a second-hand truck from Y under a hire purchase agreement which contained a clause all warranties and conditions as to fitness or road worthiness, and the truck turned out to be completely unroadworthy, Y could not rely on an exemption clause as he had committed a fundamental breach in supplying a useless vehicle.
3) Contra proferentem rule (where ambiguous interpretation will be against draftsman) Exemption clauses are construed strictly against the party who inserted them. Thus in Ammar & Azar Ltd v Brinks Jamaica Ltd, the Jamaican Supreme Court held that ‘such limitation as a party seeks to rely on must be clearly and unambiguously stated in the contract relied on.’
Implied terms
In addition to terms which are expressed by the parties orally or in writing, the law will, in some instances, imply into a contract terms which were not expressly included as a part of the agreement. These terms will be derived from
(1) statute, (2) customs or
(3) implied by the court. In deciding what terms are to be implied, the court will take into consideration what the parties must have meant to agree, taking into consideration both the commercial purpose and the circumstances of the agreement. Terms will generally not be
implied where they have been excluded by the express terms of the agreement. This is captured by the phrase expressum facit cessare tacitum (what is expressed makes what is implied silent) - the implied meaning need not be adopted when a clear meaning is provided.
Terms implied by statute
In some cases statutory provisions will deem terms to be implied into certain types of contract to protect parties who ostensibly lack equal bargaining powers e.g. purchasers and employees.
Examples of these contracts relating to the sale of goods, hire purchase and employment.
Importantly, these terms will not be implied where to do so would violate or contradict the express terms of agreement (Cf Johnstone v Bloomsbury). For this reason commercial contracts often exclude any such implied terms.
Terms implied by custom
Terms may be implied where there is a defined and general custom of a locality or usage of a particular trade. Such custom or usage must be notorious, certain and reasonable and must not be inconsistent with any statute. In Hutton v Warren, an outgoing tenant was entitled to rely on local custom that he should be paid a reasonable allowance for labour and material expanded on the land even though the lease contained no express term to that effect.
Also, in Produce Brokers Co ltd v Olympia Oil and Cake Co Ltd, the House of lords held that, where an agreement referred “all dispute arising from [the] contract” to arbitration, the arbitral panel was correct in considering custom when making it award.
A custom or usage may be excluded by the parties either expressly or impliedly; thus, terms will not be implied by reason of custom or usage where to do so would contradict one or more of the express terms of the contract.
Terms implied by the court.
Terms necessary to achieve business efficacy:
The Moorcock Principle
Where parties by inadvertence or by incompetent drafting, fail to incorporate into a contract terms which they certainly would have included had they addressed their minds properly to the drafting of the contract, the court may imply such terms in order to give “business efficacy” to the transaction. This principle was laid down by Bowen LJ in the Moorcock.
Implied Duty of Good Faith or Fair dealing
In the recent Belizean case, Bella Vista Development Co Ltd v AG, it was suggested that in some circumstance, the court would be willing to imply a duty of good faith or fair dealing. This case concerned a “termination for convenience” clause in favour of the government. Such clauses purport to allow the beneficiary of the clause to terminate the agreement without cause. The clause in question read as follow:
59.4 Notwithstanding the above, the contracting agency may terminate the contract for convenience at anytime.
The general election in Belize was held in 2008, and the government changed hands. The new government then served notice on the claimant that it was terminating the contract. The claimant sued the government for breach of contract. The claimant argued inter alia that, that, there were legal limits on the defendants’ ability to terminate, and also that in so doing he must have acted in good faith.
Legall J held and confirmed that such a duty was implied in the termination for the convenience clauses, but noted that such the burden of proof lies in the party asserting bad faith, and that the claimant had failed to discharge this burden. Further, there is a presumption of good faith. Legall J noted in part, that:
On the authorities, it is safe to come to the conclusion that bad faith, unfair dealings, an abuse of contracting discretion, and an attempt to acquire better bargain from another source, are limitations legally placed on the use of convenience clause. These cases clearly show that although there is a right to terminate a contract without a cause, under a convenience clause, that right is subject to the rule not to act in bad faith or in abuse of discretion, or in an attempt to get a better bargain from another source.
The convenience clause is subject to limitations of acting in good faith, fair dealing or without an abuse of discretion. These terms are implied in the contract. There is a very heavy burden on the part of the claimant to prove bad faith, and on the faiths they have failed to satisfy this burden.
It remains to be seen whether the Caribbean Courts will follow the approach in Bella Vista Development, and find in favour of a general implied duty of good faith, even where the express contractual terms provide for termination without a cause.
The ‘Officious Bystander’ test
The Court will also imply terms into a contract where it is obvious that both of the parties must have intended for the term to form part of the agreement. The test was described in Shirlaw v Southern Foundries Ltd, in the following terms:
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, ‘oh, of course’.9
9 Basanta-Henry v National Commercial Bank Jamaica Ltd (2004) Supreme Court, Jamaica No E-132 of 2002
Reference
Kodilinye, G., & Kolilinye, M. (2014). Commonwealth Caribbean Tort Law (5th ed.).
o Third Avenue, New York: Routledge.
