The Law Handbook 2024

684 Section 7: Consumers, contracts, the internet and copyright The parties’ subjective intentions, beliefs or expectations are not relevant to determining what a term means. For example, even if A genuinely believes that a clause requires B to transfer ownership of farming equipment to them immediately, a court will disregard such evidence and determine the meaning of the clause based on what a reasonable person would understand the clause to mean, taking into account the factors listed above. Collateral contracts A ‘collateral contract’ is a separate contract that has been entered into as a condition of the main contract. For example, where A promises B to do something in consideration of B entering into the main contract, or where A gives an undertaking to B in consideration of B entering into a contract with C. Disputes about whether a collateral contract has been made often arise when it is unclear whether a party’s statement was objectively intended to be promissory or to be contingent on the making of the main contract. Generally, a court will not find that a collateral contract has been made unless its terms are consistent with the main written contract. If a court finds that a collateral contract has been made, then evidence of its terms will be admissible and may be relevant to interpreting the terms of the main contract. Terms may be conditions or warranties Contracts always contain different types of terms, some more important than others. The more important terms are called ‘conditions’, the less important terms are called ‘warranties’. The contract does not have to identify these terms specifically as conditions or warranties (although it might be helpful to do so). A court will use the rules of construction to determine the type of term. Conditions are so important that without them, a reasonable person would consider that one or other of the parties would not have entered into the contract. If a party misrepresents a condition of a contract, the other party may be entitled to rescind the contract, as if the parties never entered into the contract (see ‘Misrepresentation or misleading conduct’, above). If a party breaches a condition, the other party can terminate the contract and/or seek damages for any loss suffered. Where the breached term is a warranty, the wronged party can only seek monetary damages for any loss suffered; they cannot terminate the contract and it remains binding on both parties. (See ‘Remedies for breach of contract’, below). In determining whether a term is a condition or a warranty, the court will use the objective approach to interpreting contracts and will consider the language used by the parties, the surrounding circumstances, and the object and purpose of the transaction. The law of contract has been significantly affected by many Acts of parliament (e.g. the ACL) to protect consumers. These Acts provide for minimum standards of trade behaviour and the standard of quality that the consumer ought to be able to expect. (For discussion of these extra standards, see Chapter 7.2: Consumer protection laws and Chapter 7.3: Consumer guarantees.) Terms limiting or excluding liability A contract can include a term that limits or excludes one of the parties from responsibility for something that may go wrong in the performance of the contract. Such a clause is called an exclusion clause or an exemption clause. For example, a contract between a builder and a homeowner for a house extension might include a term that excludes any liability for damage done to the lawn by the builder during the build. Courts have generally taken the view that exclusion clauses can be unfair and have subjected them to special scrutiny. Courts employ the objective approach to the construction of exemption clauses; however, the onus is on the party relying on the exemption clause to establish that the term has been incorporated into the contract and should be interpreted to cover the liability event that the party wants excluded. Accordingly, when a contract is a document signed by the parties, they are generally bound by any express exclusion clause contained within it, regardless of whether the affected party read the clause. Where a contract is an unsigned document (e.g. tickets, receipts, dockets), the court looks at whether the parties objectively intended to incorporate the exclusion clause into the contract. This includes considering whether reasonable notice