In European cases, and their views, on
Inan attempt to investigate whether parties still have freedom to contract ontheir own terms, the following looks at the nature and history of contracts andits origins in freedom, it identifies statutes such as the Consumer Rights Act2015 and the Sales of Goods Act 1999 that introduce conditions to creatingterms in a contract, discusses express and implied terms, and looks at UK andEuropean cases, and their views, on the freedom of contract theory.
Nature andFreedom of ContractEnglish ContractLaw originated as common law principles and commenced withRanulf de Glanvill (chief Justiciar of England 1180-1189) andthe inauguration of the kings courts.1Based on the Roman concept of bailment, Glanvill enumerated mutuum (return of consumables),commodatum (specific article to bereturned), depositum (safekeeping ofchattel), locatum (hire), vadium (pledge), and emptio venditio (bargain and sale), as contractual dutiesimposed by law and the freedom to contract on their terms.2 This LassaizeFaire view of freedom of contract was upheld in Smith v Baker & sons1891-94, where D (Defendant) could not sue R (Respondant) due to hisknowledge of the dangers of the job.3P.
S. Atiyah explains that freedom to contract was the basis of this judgementand to which Baron Bramwell took positive view in; and that this freedom couldbe in decline.4 The nature of a contract and the justification ofenforcement, is 1. economical (compelling the keeping of a bargain), and 2.Moral (justification that it was freely given).5 Forthis reason freedom to contract on terms both parties mutually agree on isconsidered a necessity and to which judges attempt to adhere to. In SuisseAtlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale 1966freedom to contract, or freedom to change terms in already construed contractwas still considered when determining what damages to give to a ship chartercompany that lost on profits due to delay in loading and unloading ships.6 LordHodson attempts to prove freedom of contract by adopting the language of LordJustice (LJ) Atkins by stipulating that “contractor may not make a validcontract that he is not to be liable…but he must use very clear words toexpress them.
“7Also, mostjudges seem to agree in this case that regulation on exclusion clauses is notto be taken as a rule of law but rather to inform of the necessity of clarity;8 thisis 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 1977In 1977 however, the Unfair Contract Terms Act10 wasintroduced by parliament that specified certain conditions for exclusionclauses 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 tobe contained in a contract.11(The decision in Smith v Barker & sons could have been different if thislegislation was enacted then). Section 11 dictates the reasonableness test towhich exclusion clauses must follow.12 Thelimitations on which exclusion clauses can be imposed can be seen in a casewhere D had to pay for a damaged dress due to misrepresenting the exclusionclause, informing D that clause excluded certain damages but contract Dsigned excluded all damages.13 Express TermsContinuing on written terms of a contract which are regulatedby law, are express terms. Once a contract is established courts may need toconsider the intention of the parties where a dispute arises.
14 In Oscar Chess Ltd v Williams (1957) it wasdecided 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 greatimportance to the contractee it is a valid term, among others. In Arnold v Britton15 andothers (2015) A (Appellant) attempted to forgo agreed maintenance payments thatwere to increase at a triennial or annual compound rate of 10%. The judges heldthat terms are interpreted through the eyes of a reasonable person,16even though commercial common sense was lacking with maintenance fees rising todisproportionately high figures by 2072.
17 Thejudges refused to imply a term that went against clear express term,18thereby supporting the freedom to contract on the parties desired terms;although not absolutely, due to interpretation methods in the hands of thecourt that limit this freedom to an extent, as mentioned above (Oscar Chess Ltdand Bannerman cases). Implied Terms:Courts Imply terms when a dispute arises on contingenciesthat were not provided in the contract.19 Forexample, Hutten v Warren (1836)20implied a term that allowed the claimant to receive compensation for farming,even though the fields lease was over.
The courts consider tests such asbusiness efficacy21 orobviousness and the officious bystander test22 toimply terms; terms that were not explicitly agreed on and possibly underminethe freedom to contract. In Att-Gen of Belize v Belize Telecom Ltd (2009), it took abroad objective view in interpreting the facts of the contract, and deciding toimply a term regarding holders of C shares and the protection they holddepending on the amount of shares they owned.23(Implyingterms seem to assist judges in dealing with complex cases). Lord Hoffman statedthe question for the courts is “whether such provision would spell out inexpress words,”24 and thattests for implying are taken as a collection of methods to imply the’expressed’ term.25 Professor Treitel believes the decision in Belize26should not herald a fundamental change in the outcome of cases, due to LordHoffman affirming that terms are not lightly to be implied.27This is due to the powers of implication, rather than the usual power ofinterpretation, being considered potentially intrusive and thereforelimitations are imposed.28This was confirmed in Marks and Spencer plc v BNPParibasSecurities Services Trust Company (Jersey) Limited and another (2015)29 byLord Neuberger, stating that the business efficacy test and officious bystandertests are still to be used as independent tests.
30Although this currently rules out a broad subjective approachthat maintainshigher judicial powers to imply terms31(ascourts may decide to revert back to the Belize decision where it deemsappropriate),a minimized freedom to contract is still apparent. It is suggested that UK courts utilize the Principles ofEuropean Contract Law when implying terms, namely upholding freedom to contractsubject to the requirements of good faith and fair dealing.’32 InEquitable Life Assurance Co Ltd v Hyman 200233terms were implied to ensure Equitable life would not be allowed to lower bonuspayments (express term) when it needed to provide fixed interest fees thatrose. Although judges decided to imply the term (barring equity life from usingthe second lever of decreasing bonus capital) based on business efficacy,surely it was a working contract that provided tax efficient investment vehicleand pensions scheme.34Therefore it seems that good faith and fair dealing might have influenced thisjudgement, and suggests this principle be implied with every contract; limitingthe freedom to contract on the party’s own terms. Good faith and fair dealing, business efficacy, and theofficious bystander tests, are tools given to judges to ensure flexibility incomplex cases such as the above mentioned where the contracts terms do notstipulate and ensure moral conduct. However, it is tools that limit the freedomto contract on the party’s own terms, allowing the judges to decide on fairnessof terms, or include terms necessary for the performance of a contract. Sales of Good Act 1979Implication of terms in law have been introduced in statutoryform.
For example the sections 13-15 of the Sales of Goods Act 197935which allow for implication when selling by description,36implication on terms of quality,37 andsale by sample.38 Thisstatute does impose restrictions on the freedom of contract, however, it doesalso give credence to the freedom of contract theory in section 5539where it states that implied terms will be “be negatived or varied by expressagreement, or by the course of dealing between the parties.” (subject to theUCTA 1977)4041 For contracts incorporated after 1 October 2015, SOGA 197942 andUCTA 197743 will bereplaced by the CRA 2015 (Consumer Rights Act 2015) CRA 2015,44that is meant to consolidate consumer rights in contracts for goods, services,digital content, and law regarding unfair contract terms.45 Incontrast to UCTA 197746which prohibits exclusion of death or personal injury,47 andstates that terms must be reasonable,48 theCRA 2015 adds new provisions. Schedule 249that lists 20 examples where terms may or must be considered unfair (possiblyanother proof of good faith and fair dealing theory in the UK). This furtherdisplays the divergence of parliament from freedom of contract by means of itslegislation on implied or unfair terms. Doctrine of Promissory EstoppelPromissory estoppel on the other hand is an example of an acceptance of negotiatedand agreed change to terms in a contract that is recognised by courts and cansupports the freedom of contract theory.50Although its focus is consideration, or lack of, however it can be interpretedas a freedom to contract on terms outside of the contract.
51Central London Property Trust Limited v High Trees House Limited1947 decided that D did not have to pay thefull rent of flats during World War 2 due to an oral agreement between theparties to pay a lesser sum during theeconomical hardships of the war.52LordDenning stated that although changes to agreements such as leases will usuallynecessitate a deed, however, equity will allow for this to take place;53showing the strength this doctrine holds. Even though it does not mention freedom of contract (UK casesgenerally do not) it allows and supports the freedom to agree on their ownterms, outside the contract, with minimum limitations. Also, consideringPromissory Estoppel can override statute concerning deeds54 dueto an agreement by both parties, it is possible that Promissory Estoppel canallow for such terms that statute prohibit, such as unfair terms, orimplications in law. Doctrine of Privity The Doctrine of Privity however, can limit the freedom tocontract on the parties desired terms.55This was upheld in Dunlop Pneumatic Tyre Co, Ltd v Selfridge & Co, Ltd(1914-15) where A (Appellant) sold tires on condition distributor did not sellfor a lower price and that this term would pass on to any that buy fromdistributor.
R (Respondent) bought from distributor, agreed with theabove term but sold tires for cheaper.56 Inthe House of Lords (highest court in the hierarchy of strength at the time)57decision, Viscount Haldene states “Our law knows nothing of a jus quaesitum tertio (rights on accountof third parties)arising by way of contract.”58This does not allow for third party benefit even where the parties desired it59 andtherefore can be a limit to freedom of contract. However, Treitle60identifies reform that was proposed, and consequently made statute,61 toallow for some third-party contracts legal enforceability. Section 1 lists outexceptions where third parties can enforce a contract, 1. Where the contractexpressly provides that he may,62 2.If it was for his benefit63(and the parties that contracted intended).64This statute can be interpreted as upkeeping the freedom of contract and allowsparties to specify with a properly constructed term,65 thelegal rights of a third party if they so desire.
European Union (EU) and Freedom of ContractIn the Code Napolean’it expresses the connection between Freedom of contract and private autonomy.66 Italso seems that the treaty of Rome supports, but does not specify, its supportfor freedom of contract by stating in article 3(c)67″the abolition, as between Member States, of obstacles to freedom of movementfor persons, services and capital”; contracts with no border limits.68 In Hans Werhof vFreeway Traffic Systems GmbH & Co. KG (2006),69 in deciding whether in a business transferee would be partyto a collective agreement made by a business transfer, the court decided “acontract is characterized by the principle of freedom of parties to arrangetheir own affairs,”70 andtherefore the complainant had no right to wage increase that he waivered due toa new agreement between companies. It would therefore seem that the EuropeanCourts attempt to uphold the freedom of contract principle where it does notclearly go against directives or statute. It is noteworthy to mention that legislation on contracts inthe UK, including UCTA 1977, SOGA 1979 and CRA 2015, were all passed after 1stJanuary 1973, the year the UK entered the European Economic Community (nowknown as the European Union).71 Andtherefore, although the EU still regard and uphold the freedom of contract (asseen in the Werhof case above), it may have initiated the move away fromfreedom of contract to consumer rights that are legislated on, and governed bythe judiciary in the UK. ConclusionIn conclusion,the freedom of parties to contract on their own terms lies at the roots of theconcept of contracts for economical increase and moral values.
However,implications in law such as UCTA 197772,SOGA 197973and the consolidating CRA 201574are acts of parliament that impede on the freedom to contract. Theselegislations prevent such terms that limit liability for death or personalinjury (UCTA 1977) or setting guidelines to implied terms in consumer sales(SOGA 1979). Good faith and fair dealing could have caused this change. Implied termsgive power to the judiciary to insert terms that satisfy certain tests, and theBelize75case shows how easily the law can change its view and take a broad objectiveview, minimizing freedom of contract more than it already does. However, EU lawand cases specify freedom of contract when deciding on given terms in acontract and the doctrine of promissory estoppel supports the freedom ofparties to agree on terms outside the contract. Therefore, itseems that freedom of contract in the UK upholds an integral role in thejudicial and legislative arena, and ensures that current boundaries on freedomis not taken lightly where there are complexities, and therefore necessitateintervention, However, freedom to contract on the party’s own terms is outdatedin a literal sense due to current common law and statute which seems to emanatefrom the current UK membership of the EU. 1 ThomasAtkins Street, The History and Theory of English Contract Law (Washington, USA,Beard Books 1999) 12 ThomasAtkins Street, The History and Theory of English Contract Law (Washington, USA,Beard Books 1999) 33 Smith vBaker & Sons 1891-94 All ER Rep 69 (HL)4 P. S.
Atiyah, The Rise and Fall of Freedom of Contract (Oxford UK, Clarendon Press1979) 3775 EdwinPeel, Contract (Halsbury’s Laws of England, Vol 22, 2012) 2026SuisseAtlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale1966 2 All ER 61 (HL)7SuisseAtlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale1966 2 All ER 61 (HL) 808SuisseAtlantique Société D’armement Maritime S A v N V Rotterdamsche Kolen Centrale1966 2 All ER 61 (HL) 68, 72, 80, 9 The CapPalos 1921 All ER Rep 249 (CA)10 UnfairContract Terms Act (UCTA) 197711 UCTA1977, s 212 UCTA1977, s 1113 Curtisv Chemical Cleaning & Dyeing Co Ltd 1951 1 All ER 631 (CA)14 HughBeale (ed), Chitty on Contracts, General Principles (31st edn,Vol.1, Sweet & Maxwell) 90715 Arnoldv Britton and others 2015 UKSC 36 (SC)16 Arnoldv Britton and others 2015 UKSC 36 15 (SC)17 Arnoldv Britton and others 2015 UKSC 36 100 (SC)18 Arnoldv Britton and others 2015 UKSC 36 55 (SC)19 HughBeale (ed), Chitty on Contracts, General Principles (31st edn,Vol.1, Sweet & Maxwell 2012) 98520 Huttonv Warren Clerk (1836) 1 Meeson and Welsby 466 150, E.R. 517 (Court ofExchequer)21 TheMoorcock (1889) 14 P.D.
64 (CA)22 Gardnerv Coutts & Co 1968 1 WLR 173 (Chancery Division)23Attorney General of Belize and others v Belize Telecom Ltd and another 2009UKPC 1024Attorney General of Belize and others v Belize Telecom Ltd and another 2009UKPC 10 2125 HughBeale (ed), Chitty on Contracts, General Principles (31st edn,Vol.1, Sweet & Maxwell 2012) 98726AttorneyGeneral of Belize and others v Belize Telecom Ltd and another 2009 UKPC 1027 EdwinPeel (ed), Treitel on the Law of Contract (13thedn, Sweet &Maxwell 2007) 22328 EdwinPeel (ed), Treitel on the Law of Contract (13th edn, Sweet &Maxwell 2007) 22329 Marksand Spencer plc (Appellant) v BNP Paribas Securities Services Trust Company(Jersey) Limited and another (Respondents) 2015 UKSC 72 (SC)30 Marksand Spencer plc (Appellant) v BNP Paribas Securities Services Trust Company(Jersey) Limited and another (Respondents) 2015 UKSC 72, UKSC 2014/0158 2431 RichardHooley, Implied Terms After Belize Telecom (2014) 73 The Cambridge Law Journal315 32Article1:102 – Freedom of contract (The Principles of European Contract Law, 1998) uio.no/lm/eu.contract.principles.parts. 1.to.3.2002/1.102.html> accessed 5 January 201733EquitableLife Assurance Society v Hyman – 2002 1 AC 408 ICLR: Appeal Cases 2002 Vol 134HughCollins, Implied Terms: The Foundation in Good Faith and Fair Dealing (2014) 67(1) Current Legal Problems 31835 Salesof Goods Act (SOGA) 1976, s 13-1536 SOGA1979, s 1337 SOGA1979, s 1438 SOGA1979, s 1539 SOGA1979, s 5540 SOGA1979, s 5541LordMillet, The Principle Of Freedom Of Contract In Sale Of Goods Agreements (2011)34 Encyclopaedia of Forms and Precedents, Sale Of Goods 9142 SOGA197943 UCTA197744Consumer Rights Act (CRA) 201545Elizabeth Ovey, The Consumer Rights Act 2015: clarity and confidence forconsumers and traders? 30 (2015) JIBFL 50446 UCTA197747 UCTA1977, s 248 UCTA1977, s 1149 CRA2015 Sch 250 JillPoole, Textbook on Contract Law (13th Edition, Oxford UniversityPress 2016) 15251 TheFall and Rise of Freedom of Contract, F. H. Buckley, Duke University Press,London UK, 1999, p.2652 CentralLondon Property Trust Limited v High Trees House Limited 1947 K.B. 130 (KB)53 CentralLondon Property Trust Limited v High Trees House Limited 1947 K.B. 130 (KB)54 Law ofProperty Act 1925 s. 5355 JillPoole, Textbook on Contract Law (13th Edition, Oxford UniversityPress 2016) 43356 DunlopPneumatic Tyre Co, Ltd v Selfridge & Co, Ltd 1914-15 All ER Rep 333 (HL)57 EmilyFinch, Stefan Fafinski, Legal Skills (5th edn, Oxford UniversityPress) 8458 DunlopPneumatic Tyre Co, Ltd v Selfridge & Co, Ltd 1914-15 All ER Rep 333 (HL)59 Tweddlev Atkinson 1861-73 All ER Rep 369 (QB)60 EdwinPeel (ed), Treitel on the Law of Contract (13th edn, Sweet &Maxwell 2007) 61461Contracts (Rights of Third Parties) Act 199962Contracts (Rights of Third Parties) Act 1999 s1.1(a)63Contracts (Rights of Third Parties) Act 1999 s1.1(b)64Contracts (Rights of Third Parties) Act 1999 s1.265Prudential Assurance Co Ltd v Ayres and another 2008 1 All ER 1266 (CA)66 JurgenBasedow, Freedom of Contract in the European Union (2008) 16 European Review ofPrivate Law67 Treatyof Rome 1957 Article 3(c)68 JurgenBasedow, Freedom of Contract in the European Union (2008) 16 European Review ofPrivate Law 69 CaseC-499/04 Hans Werhof v Freeway Traffic Systems GmbH & Co. KG (2006) CelexNo. 604CJ0499 (ECJ)70 CaseC-499/04 Hans Werhof v Freeway Traffic Systems GmbH & Co. KG (2006) CelexNo. 604CJ0499 (ECJ) 23 (ECJ)71 Atimeline of Britain’s EU membership in Guardian reporting. (The Guardian, 25June 2016)
