#7304 - Extrinsic Evidence Casebook Summary - Contracts 2

State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSLWR 170

Relevant Facts: The plaintiff (H) entered into a number of contracts with the SRA relating to placing advertising materials. Cl6 of the 1981 contract provided that SRA may terminate the contract upon giving notice of one month and that doing so wouldn’t give rise to a compensation claim. In Jan 1983 the plaintiff contracted with a cigarette manufacturer to display cigarette advertising for 5 years. In March the NSW government was phasing out advertising on govt property. This gave rise to a dispute which led to termination of the agreement between H and SRTA.

Before analysing the issues McHugh JA set out more of the facts. Namely that in discussion between H and officers of the SRA, H sought to remove cl6 and that the officers contended it was a standard document and could not be changed. An officer also said that the clause was only ever invoked for non-payment of rent or if someone wishes to advertise objectionable content. Further statements were made to assure that the clause would not be invoked and that they did not affect H. In cross Mr Low (for H) said that he didn’t sought to remove cl6 because he knew he was going to have difficulty having the clauses changed.

Issue 1: Whether or not the letter accompanying the 1981 advertising contract was part of the contract and what effect it would have.

Decision and Ratio (McHugh JA):

• Even if it is accepted that the letter forms part of the contract, there is no inconsistency between the letter and contract. When read together they indicate that the parties entered a contract for 5 years ‘until sooner determined’

• But clause 6 enabled the defendant to terminate the contract before the 5 period expired

Issue 2: Whether or not the contract was partly oral and partly written and what effect would the it have

Decision and Ratio (McHugh JA):

• Before reasoning McHugh JA stated that the parol evidence rule has no application until it is determined that the terms of the agreement are wholly contained in writing

• Noting the disagreement between Williston (when documents appear to be a complete record, it is conclusively presumed to be the contract) and Corbin (unless the parties assent to it as a complete and accurate integration of the contract) he preferred the view of the English Law Comission:

“the mere production of a contractual document, however complete it may look, cannot as a matter of law exclude evidence of oral terms if the other party asserts that such terms were agreed”

• He then said if the assertions were proved that oral evidence would not be excluded and vice versa

• Though the plaintiff was entitled to rely on the oral assurance of the officers, it should be rejected that the contract was partly oral. He drew this conclusion from the discussion of the parties, in particular:

  • It was made clear that the officer had no authority to change any condition of the contract – this was accepted by Mr Low – it became apparent to him that he knew he was going to have difficulty getting it changed

  • He was also informed that it was a standard authority document that couldn’t be changed

• Hence the literal effect of the contract was to give the defendant an unfettered right to terminate the contract

Furthermore it was ruled that the assurances could not amount to a collateral contract because the terms of the assurance contradict the terms of the condition – collaterals only possess consideration from the main contract when they do not reduce or alter rights created by the main contract.

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133

Relevant Facts: By a registered memorandum of lease, respondent Spencer (S) leased to appellant Hoyt’s (H) premises for four years. The lease, in a proviso, provided that S may at any time during the term terminate the lease giving four weeks’ notice of intention to do so. During the term S terminated the lease under this proviso.

Case History: The plaintiff brought action alleging that in consideration of its taking the lease, the defendant agreed that it would not, during the currency of the term, give notice to quit. The full court gave judgement to the defendant on a demurrer

Issue: What effect did the statement made as collateral have on the main contract

Decision: There is a conflict between the collateral and the main contract in that the existence of the powers of the proviso is completely at odds with the collateral.

Ratio (Isaacs J):

• After stating the parol evidence rule, Isaacs J went on to say that to the extent that parties have deliberately agreed to record any part of their contract, this record is unimpeachable by oral testimony (any inconsistencies – record prevails)

• He then said that - the claim was made on the basis that there was no mistake in framing the main contract of the lease, and that, the contracts function in the claim is only the sole consideration for the independent collateral agreement

  • He stated authority for this proposition (Lord Moulton in Heilbut Symons)

• This led to the conclusion that the main contract (utilized to form consideration for the collateral) must be taken exactly as it is, its provisions unchanging and the parties subject to the benefits and burdens under it

• Hence the collateral contract alters the contractual relations of the party but not the contractual relations established under the main contract. The practical result of either cannot affect the independence and legal effect of the other

  • And even if it were to be assumed that one agreement affects the other, the dominant (main) contract prevails

The main question for decision is hence: whether or not the promise leaves the contractual rights of the respondent under the main contract unimpaired:

• It doesn’t – the argument of the plaintiff is that but for the additional promise the respondent had the power by virtue of the proviso to terminate the contract. And the plaintiff’s case is that that power was cut down by the further promise

• There is a conflict between the two: the plaintiff first concedes the full breadth of the proviso, and then cuts it down to the point of rendering it nugatory

Order: Judgement of the full court be affirmed and the appeal dismissed.

Ferguson dissented on the basis of the underlying purpose of the law of contract being centred on the freedom of the parties to make agreements. “I cannot see why if they choose to do so they should not by another agreement modify those rights...The function of the court is not to dictate to parties what agreement they should make, but to ascertain whether they have made an agreement and then to interpret it”