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In European cases, and their views, on

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In
an attempt to investigate whether parties still have freedom to contract on
their own terms, the following looks at the nature and history of contracts and
its origins in freedom, it identifies statutes such as the Consumer Rights Act
2015 and the Sales of Goods Act 1999 that introduce conditions to creating
terms in a contract, discusses express and implied terms, and looks at UK and
European cases, and their views, on the freedom of contract theory.

 

Nature and
Freedom of Contract

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English Contract
Law originated as common law principles and commenced with
Ranulf de Glanvill (chief Justiciar of England 1180-1189) and
the inauguration of the kings courts.1
Based on the Roman concept of bailment, Glanvill enumerated mutuum (return of consumables),commodatum (specific article to be
returned), depositum (safekeeping of
chattel), locatum (hire), vadium (pledge), and emptio venditio (bargain and sale), as contractual duties
imposed by law and the freedom to contract on their terms.2  This Lassaize
Faire view of freedom of contract was upheld in Smith v Baker & sons1891-94, where D (Defendant) could not sue R (Respondant) due to his
knowledge of the dangers of the job.3
P. S. Atiyah explains that freedom to contract was the basis of this judgement
and to which Baron Bramwell took positive view in; and that this freedom could
be in decline.4

 

The nature of a contract and the justification of
enforcement, is 1. economical (compelling the keeping of a bargain), and 2.
Moral (justification that it was freely given).5 For
this reason freedom to contract on terms both parties mutually agree on is
considered a necessity and to which judges attempt to adhere to. In Suisse
Atlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale 1966
freedom to contract, or freedom to change terms in already construed contract
was still considered when determining what damages to give to a ship charter
company that lost on profits due to delay in loading and unloading ships.6 Lord
Hodson attempts to prove freedom of contract by adopting the language of Lord
Justice (LJ) Atkins by stipulating that “contractor may not make a valid
contract that he is not to be liable…but he must use very clear words to
express them.”7Also, most
judges seem to agree in this case that regulation on exclusion clauses is not
to be taken as a rule of law but rather to inform of the necessity of clarity;8 this
is due to the freedom with which to give parties to contract on any terms
(barring terms that were prohibited by parliament at the time.)9

 

Unfair Contract Terms Act 1977

In 1977 however, the Unfair Contract Terms Act10 was
introduced by parliament that specified certain conditions for exclusion
clauses to be valid; conditions that limit the freedom to contract on any term.
For example, Section 2 does not allow exclusion of death or personal injury to
be contained in a contract.11
(The decision in Smith v Barker & sons could have been different if this
legislation was enacted then). Section 11 dictates the reasonableness test to
which exclusion clauses must follow.12 The
limitations on which exclusion clauses can be imposed can be seen in a case
where D had to pay for a damaged dress due to misrepresenting the exclusion
clause, informing D that clause excluded certain damages but contract D
signed excluded all damages.13

 

Express Terms

Continuing on written terms of a contract which are regulated
by law, are express terms. Once a contract is established courts may need to
consider the intention of the parties where a dispute arises.14  In Oscar Chess Ltd v Williams (1957) it was
decided a statement made by an expert in the given field is a valid term.
Bannerman v White (1861) informs that where the statement is of great
importance to the contractee it is a valid term, among others.

 

In Arnold v Britton15 and
others (2015) A (Appellant) attempted to forgo agreed maintenance payments that
were to increase at a triennial or annual compound rate of 10%. The judges held
that terms are interpreted through the eyes of a reasonable person,16
even though commercial common sense was lacking with maintenance fees rising to
disproportionately high figures by 2072.17 The
judges refused to imply a term that went against clear express term,18
thereby supporting the freedom to contract on the parties desired terms;
although not absolutely, due to interpretation methods in the hands of the
court that limit this freedom to an extent, as mentioned above (Oscar Chess Ltd
and Bannerman cases).

 

 

Implied Terms:

Courts Imply terms when a dispute arises on contingencies
that were not provided in the contract.19 For
example, Hutten v Warren (1836)20
implied a term that allowed the claimant to receive compensation for farming,
even though the fields lease was over. The courts consider tests such as
business efficacy21 or
obviousness and the officious bystander test22 to
imply terms; terms that were not explicitly agreed on and possibly undermine
the freedom to contract.

 

In Att-Gen of Belize v Belize Telecom Ltd (2009), it took a
broad objective view in interpreting the facts of the contract, and deciding to
imply a term regarding holders of C shares and the protection they hold
depending on the amount of shares they owned.23(Implying
terms seem to assist judges in dealing with complex cases). Lord Hoffman stated
the question for the courts is “whether such provision would spell out in
express words,”24 and that
tests for implying are taken as a collection of methods to imply the
‘expressed’ term.25

 

Professor Treitel believes the decision in Belize26
should not herald a fundamental change in the outcome of cases, due to Lord
Hoffman affirming that terms are not lightly to be implied.27
This is due to the powers of implication, rather than the usual power of
interpretation, being considered potentially intrusive and therefore
limitations are imposed.28

This was confirmed in Marks and Spencer plc v BNP
ParibasSecurities Services Trust Company (Jersey) Limited and another (2015)29 by
Lord Neuberger, stating that the business efficacy test and officious bystander
tests are still to be used as independent tests.30
Although this currently rules out a broad subjective approachthat maintains
higher judicial powers to imply terms31(as
courts may decide to revert back to the Belize decision where it deems
appropriate),a minimized freedom to contract is still apparent.

 

It is suggested that UK courts utilize the Principles of
European Contract Law when implying terms, namely upholding freedom to contract
subject to the requirements of good faith and fair dealing.’32 In
Equitable Life Assurance Co Ltd v Hyman 200233
terms were implied to ensure Equitable life would not be allowed to lower bonus
payments (express term) when it needed to provide fixed interest fees that
rose. Although judges decided to imply the term (barring equity life from using
the second lever of decreasing bonus capital) based on business efficacy,
surely it was a working contract that provided tax efficient investment vehicle
and pensions scheme.34
Therefore it seems that good faith and fair dealing might have influenced this
judgement, and suggests this principle be implied with every contract; limiting
the freedom to contract on the party’s own terms.

 

Good faith and fair dealing, business efficacy, and the
officious bystander tests, are tools given to judges to ensure flexibility in
complex cases such as the above mentioned where the contracts terms do not
stipulate and ensure moral conduct. However, it is tools that limit the freedom
to contract on the party’s own terms, allowing the judges to decide on fairness
of terms, or include terms necessary for the performance of a contract.

 

Sales of Good Act 1979

Implication of terms in law have been introduced in statutory
form. For example the sections 13-15 of the Sales of Goods Act 197935
which allow for implication when selling by description,36
implication on terms of quality,37 and
sale by sample.38 This
statute does impose restrictions on the freedom of contract, however, it does
also give credence to the freedom of contract theory in section 5539
where it states that implied terms will be “be negatived or varied by express
agreement, or by the course of dealing between the parties.” (subject to the
UCTA 1977)4041

 

For contracts incorporated after 1 October 2015, SOGA 197942 and
UCTA 197743 will be
replaced by the CRA 2015 (Consumer Rights Act 2015) CRA 2015,44
that is meant to consolidate consumer rights in contracts for goods, services,
digital content, and law regarding unfair contract terms.45 In
contrast to UCTA 197746
which prohibits exclusion of death or personal injury,47 and
states that terms must be reasonable,48 the
CRA 2015 adds new provisions. Schedule 249
that lists 20 examples where terms may or must be considered unfair (possibly
another proof of good faith and fair dealing theory in the UK). This further
displays the divergence of parliament from freedom of contract by means of its
legislation on implied or unfair terms.

 

Doctrine of Promissory Estoppel

Promissory estoppel on the other hand is an example of an acceptance of negotiated
and agreed change to terms in a contract that is recognised by courts and can
supports the freedom of contract theory.50
Although its focus is consideration, or lack of, however it can be interpreted
as a freedom to contract on terms outside of the contract.51Central London Property Trust Limited v High Trees House Limited
1947 decided that D did not have to pay the
full rent of flats during World War 2 due to an oral agreement between the
parties to pay a lesser sum during the
economical hardships of the war.52Lord
Denning stated that although changes to agreements such as leases will usually
necessitate a deed, however, equity will allow for this to take place;53
showing the strength this doctrine holds.

 

Even though it does not mention freedom of contract (UK cases
generally do not) it allows and supports the freedom to agree on their own
terms, outside the contract, with minimum limitations. Also, considering
Promissory Estoppel can override statute concerning deeds54 due
to an agreement by both parties, it is possible that Promissory Estoppel can
allow for such terms that statute prohibit, such as unfair terms, or
implications in law.

 

Doctrine of Privity

The Doctrine of Privity however, can limit the freedom to
contract on the parties desired terms.55
This was upheld in Dunlop Pneumatic Tyre Co, Ltd v Selfridge & Co, Ltd
(1914-15) where A (Appellant) sold tires on condition distributor did not sell
for a lower price and that this term would pass on to any that buy from
distributor. R (Respondent) bought from distributor, agreed with the
above term but sold tires for cheaper.56 In
the House of Lords (highest court in the hierarchy of strength at the time)57
decision, Viscount Haldene states “Our law knows nothing of a jus quaesitum tertio (rights on account
of third parties)arising by way of contract.”58
This does not allow for third party benefit even where the parties desired it59 and
therefore can be a limit to freedom of contract.

 

However, Treitle60
identifies reform that was proposed, and consequently made statute,61 to
allow for some third-party contracts legal enforceability. Section 1 lists out
exceptions where third parties can enforce a contract, 1. Where the contract
expressly provides that he may,62 2.
If it was for his benefit63
(and the parties that contracted intended).64
This statute can be interpreted as upkeeping the freedom of contract and allows
parties to specify with a properly constructed term,65 the
legal rights of a third party if they so desire.

 

European Union (EU) and Freedom of Contract

In the Code Napolean’
it expresses the connection between Freedom of contract and private autonomy.66 It
also seems that the treaty of Rome supports, but does not specify, its support
for freedom of contract by stating in article 3(c)67
“the abolition, as between Member States, of obstacles to freedom of movement
for persons, services and capital”; contracts with no border limits.68  In Hans Werhof v
Freeway Traffic Systems GmbH & Co. KG (2006),69 in deciding whether in a business transferee would be party
to a collective agreement made by a business transfer, the court decided “a
contract is characterized by the principle of freedom of parties to arrange
their own affairs,”70 and
therefore the complainant had no right to wage increase that he waivered due to
a new agreement between companies. It would therefore seem that the European
Courts attempt to uphold the freedom of contract principle where it does not
clearly go against directives or statute.

 

It is noteworthy to mention that legislation on contracts in
the UK, including UCTA 1977, SOGA 1979 and CRA 2015, were all passed after 1st
January 1973, the year the UK entered the European Economic Community (now
known as the European Union).71 And
therefore, although the EU still regard and uphold the freedom of contract (as
seen in the Werhof case above), it may have initiated the move away from
freedom of contract to consumer rights that are legislated on, and governed by
the judiciary in the UK.

 

Conclusion

In conclusion,
the freedom of parties to contract on their own terms lies at the roots of the
concept of contracts for economical increase and moral values. However,
implications in law such as UCTA 197772,
SOGA 197973
and the consolidating CRA 201574
are acts of parliament that impede on the freedom to contract. These
legislations prevent such terms that limit liability for death or personal
injury (UCTA 1977) or setting guidelines to implied terms in consumer sales
(SOGA 1979). Good faith and fair dealing could have caused this change.

 

Implied terms
give power to the judiciary to insert terms that satisfy certain tests, and the
Belize75
case shows how easily the law can change its view and take a broad objective
view, minimizing freedom of contract more than it already does. However, EU law
and cases specify freedom of contract when deciding on given terms in a
contract and the doctrine of promissory estoppel supports the freedom of
parties to agree on terms outside the contract.

 

Therefore, it
seems that freedom of contract in the UK upholds an integral role in the
judicial and legislative arena, and ensures that current boundaries on freedom
is not taken lightly where there are complexities, and therefore necessitate
intervention, However, freedom to contract on the party’s own terms is outdated
in a literal sense due to current common law and statute which seems to emanate
from the current UK membership of the EU.

 

1 Thomas
Atkins Street, The History and Theory of English Contract Law (Washington, USA,
Beard Books 1999) 1

2 Thomas
Atkins Street, The History and Theory of English Contract Law (Washington, USA,
Beard Books 1999) 3

3 Smith v
Baker & Sons 1891-94 All ER Rep 69 (HL)

4 P. S.
Atiyah, The Rise and Fall of Freedom of Contract (Oxford UK, Clarendon Press
1979) 377

5 Edwin
Peel, Contract (Halsbury’s Laws of England, Vol 22, 2012) 202

6Suisse
Atlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale
1966 2 All ER 61 (HL)

7Suisse
Atlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale
1966 2 All ER 61 (HL) 80

8Suisse
Atlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale
1966 2 All ER 61 (HL) 68, 72, 80,

9 The Cap
Palos 1921 All ER Rep 249 (CA)

10 Unfair
Contract Terms Act (UCTA) 1977

11 UCTA
1977, s 2

12 UCTA
1977, s 11

13 Curtis
v Chemical Cleaning & Dyeing Co Ltd 1951 1 All ER 631 (CA)

14 Hugh
Beale (ed), Chitty on Contracts, General Principles (31st edn,
Vol.1, Sweet & Maxwell) 907

15 Arnold
v Britton and others 2015 UKSC 36 (SC)

16 Arnold
v Britton and others 2015 UKSC 36 15 (SC)

17 Arnold
v Britton and others 2015 UKSC 36 100 (SC)

18 Arnold
v Britton and others 2015 UKSC 36 55 (SC)

19 Hugh
Beale (ed), Chitty on Contracts, General Principles (31st edn,
Vol.1, Sweet & Maxwell 2012) 985

20 Hutton
v Warren Clerk (1836) 1 Meeson and Welsby 466 150, E.R. 517 (Court of
Exchequer)

21 The
Moorcock (1889) 14 P.D. 64 (CA)

22 Gardner
v Coutts & Co 1968 1 WLR 173 (Chancery Division)

23
Attorney General of Belize and others v Belize Telecom Ltd and another 2009
UKPC 10

24
Attorney General of Belize and others v Belize Telecom Ltd and another 2009
UKPC 10 21

25 Hugh
Beale (ed), Chitty on Contracts, General Principles (31st edn,
Vol.1, Sweet & Maxwell 2012) 987

26Attorney
General of Belize and others v Belize Telecom Ltd and another 2009 UKPC 10

27 Edwin
Peel (ed), Treitel on the Law of Contract (13thedn, Sweet &
Maxwell 2007) 223

28 Edwin
Peel (ed), Treitel on the Law of Contract (13th edn, Sweet &
Maxwell 2007) 223

29 Marks
and Spencer plc (Appellant) v BNP Paribas Securities Services Trust Company
(Jersey) Limited and another (Respondents) 2015 UKSC 72 (SC)

30 Marks
and Spencer plc (Appellant) v BNP Paribas Securities Services Trust Company
(Jersey) Limited and another (Respondents) 2015 UKSC 72, UKSC 2014/0158 24

31 Richard
Hooley, Implied Terms After Belize Telecom (2014) 73 The Cambridge Law Journal
315

32Article
1:102 – Freedom of contract (The Principles of European Contract Law, 1998)
accessed 5 January 2017

33Equitable
Life Assurance Society v Hyman – 2002 1 AC 408 ICLR: Appeal Cases 2002  Vol 1

34Hugh
Collins, Implied Terms: The Foundation in Good Faith and Fair Dealing (2014) 67
(1) Current Legal Problems 318

35 Sales
of Goods Act (SOGA) 1976, s 13-15

36 SOGA
1979, s 13

37 SOGA
1979, s 14

38 SOGA
1979, s 15

39 SOGA
1979, s 55

40 SOGA
1979, s 55

41Lord
Millet, The Principle Of Freedom Of Contract In Sale Of Goods Agreements (2011)
34 Encyclopaedia of Forms and Precedents, Sale Of Goods 91

42 SOGA
1979

43 UCTA
1977

44
Consumer Rights Act (CRA) 2015

45
Elizabeth Ovey, The Consumer Rights Act 2015: clarity and confidence for
consumers and traders? 30 (2015) JIBFL 504

46 UCTA
1977

47 UCTA
1977, s 2

48 UCTA
1977, s 11

49 CRA
2015 Sch 2

50 Jill
Poole, Textbook on Contract Law (13th Edition, Oxford University
Press 2016) 152

51 The
Fall and Rise of Freedom of Contract, F. H. Buckley, Duke University Press,
London UK, 1999, p.26

52 Central
London Property Trust Limited v High Trees House Limited 1947 K.B. 130 (KB)

53 Central
London Property Trust Limited v High Trees House Limited 1947 K.B. 130 (KB)

54 Law of
Property Act 1925 s.53

55 Jill
Poole, Textbook on Contract Law (13th Edition, Oxford University
Press 2016) 433

56 Dunlop
Pneumatic Tyre Co, Ltd v Selfridge & Co, Ltd 1914-15 All ER Rep 333 (HL)

57 Emily
Finch, Stefan Fafinski, Legal Skills (5th edn, Oxford University
Press) 84

58 Dunlop
Pneumatic Tyre Co, Ltd v Selfridge & Co, Ltd 1914-15 All ER Rep 333 (HL)

59 Tweddle
v Atkinson 1861-73 All ER Rep 369 (QB)

60 Edwin
Peel (ed), Treitel on the Law of Contract (13th edn, Sweet &
Maxwell 2007) 614

61
Contracts (Rights of Third Parties) Act 1999

62
Contracts (Rights of Third Parties) Act 1999 s1.1(a)

63
Contracts (Rights of Third Parties) Act 1999 s1.1(b)

64
Contracts (Rights of Third Parties) Act 1999 s1.2

65
Prudential Assurance Co Ltd v Ayres and another 2008 1 All ER 1266 (CA)

66 Jurgen
Basedow, Freedom of Contract in the European Union (2008) 16 European Review of
Private Law

67 Treaty
of Rome 1957 Article 3(c)

68 Jurgen
Basedow, Freedom of Contract in the European Union (2008) 16 European Review of
Private Law

69 Case
C-499/04 Hans Werhof v Freeway Traffic Systems GmbH & Co. KG (2006) Celex
No. 604CJ0499 (ECJ)

70 Case
C-499/04 Hans Werhof v Freeway Traffic Systems GmbH & Co. KG (2006) Celex
No. 604CJ0499 (ECJ) 23 (ECJ)

71 A
timeline of Britain’s EU membership in Guardian reporting. (The Guardian, 25
June 2016)
accessed 12 January 2017

72 UCTA
1977

73 SOGA
1979

74 CRA
2015

75Attorney
General of Belize and others v Belize Telecom Ltd and another 2009 UKPC 10

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