CONTRACT LAW 1 Name: Professor: Course Code: Date of Submission: Paper Outline: Introductionâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.3
Case law of Byrne and Frewâ€¦â€¦â€¦â€¦..â€¦â€¦â€¦.â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦3 Concept of implied Terms and Relational Contractsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦4 Relational Contracts and Byrneâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..6 Conclusion
- What is contract law?
- Macaulay and Macneil on contracts
- Relational contract theory
- Purpose of the paper
- Summary of the points identified.
Contracts refer to agreements creating obligations that are enforceable by law. The basic elements that constitute a contract are consideration, mutual assent, legality, and capacity (Barker, 2000). Macaulay and Macneil identify another perspective of contracts, by introducing relational contract theory (Macneil and Evanston, 2013). A relational contract is a type of contract that is built upon the relationship of trust between parties concerned. Under this theory, parties involved in a commercial contract are engaged in creating a long term relationship, affecting the manner in which they will associate with one another. This paper examines whether relational contract gives an adequate explanation on the reasons as to why the High Court did not imply terms when analyzing the case of Byrne and Frew against Australian airlines. This paper takes a stand that relational contract does not give an adequate explanation on why the court refused to imply the terms identified. The Case of Byrne and Frew:
In the case of Bryne and Frew vs. Australian Airlines, the main issue that the court was to determine on the relationship between an individual employment contract, and an award from the industrial court. The two appellants were employed by the Australian airline company. They were dismissed on assertions that they interfered with luggages of the airline customers. This is after they were captured by the secret cameras, interfering with luggages. They sued the airline company for purposes of recovering damages, because of a statutory provision of clause 11 (a) which provided that the termination of an employment contract should not be unjust, unreasonable, or harsh (Gooley, Radan and Vickovich, 2007). Their main argument was that clause 11 (a) is an implied term in an employment contract, and on this basis, the company breached these terms by dismissing them through a harsh and unjust manner. In coming up with a judgment, the court denoted that terms can either be implied by law, or by fact. The court gave an opinion that the test of an implied term in a formal contract is established by the case of BP refinery vs. Hastings Shire Council (Ellinghaus, 2007). Terms that are implied by fact must pass the test of equitable and reasonableness, have a clear expression, obvious, consistent, and must pass the test of business efficacy. These terms did not pass the obvious test, and hence they cannot be implied. Implied Terms and Relational Contracts:
An implied term refers to the legal provisions that are not directly identified by a spoken word, but introduced in a contract through courts as a necessary method to give meaning to the intentions of a contracting party. It is possible to imply a term in a contract through law. This is depicted in the 1977 case of the city council of Liverpool vs. Irwin (Ellinghaus, 2007). Under this case, the tenants lived in a fifteen storey tower, whose lifts did not work, and stairs in a bad condition. Tenants refused to pay, citing that the council had a duty to keep the common parts of the building in a decent manner. The court was to rule on whether maintaining the common parts of a building was the responsibility of the landlord or not (Barker, 2000). Lord Wilberforce was very categorical by denoting that it was necessary for tenants to live in a house maintained by the landlord (Willmott and Butler, 2013). The court gave a ruling that an implied word under this scenario must pass the test of necessity (Willmott and Butler, 2013). The words, â€œtaking reasonable careâ€ passes this test. The question to ask; what is reasonable care under this circumstance? The court ruled that â€œreasonable careâ€ is dependent on what tenants should do for themselves (Willmott and Butler, 2013). It was the duty of tenants to take care of the landlordâ€™s property, and hence these terms could be implied. It is also possible to imply contract by facts. Justice Mason, in giving a ruling in Codelfa construction vs. State Rail Authority, denotes that it is appropriate to imply a term, if it is obvious. In determining an obvious situation, the court will use the bystander test. This is a test in which the court might try to find the opinion of a neutral person. Codelfa was contracted by the railway authority, and he was allowed to work around the clock (Gooley, Radan and Vickovich, 2007). However, an injunction prevented him from working on Sundays, and during the night. The court refused to recognize the terms â€œauthority would indemnify any additional costs, if their working hours was affectedâ€ because they were not obvious (Gooley, Radan and Vickovich, 2007). It is also possible to imply a contract by customs. This is contained in a decision arrived by the court in Con-Stan industries vs. Norwich Winterthur Insurance. The judges denoted â€œthat it is possible to imply a term based on the custom, provided that there is considerable evidence that the custom under consideration is well established in that industry, and a contract in that situation can be assumed to have borrowed the term, and incorporated it in the contractâ€ (Gooley, Radan and Vickovich, 2007). Though this ruling, the judges agreed that an established custom in a particular industry can be implied in a contract that governs relations in the industry under consideration. Under this case, Con-Stan hired an insurance broker, Norwich, who was approved by the insurance company. Norwich went into liquidation and Con-Stan sued for unpaid premium, denoting that it was the customs of the insurance industry, for people to pay premiums to brokers. The court ruled that the custom identified is not recognized within the industry. Relational contract views a contract as a relation, rather than a transaction (Gooley, Radan and Vickovich, 2007). The basic characteristic of a relational contract is that there must be mutual trust, respect, and good faith amongst the parties engaged in the contract. It is impossible to conduct a relational contract without the use of implied terms. Bryne and Frew and Relational Contracts:
There are a variety of reasons given as to why the High Court refused to imply the terms harsh, unjust and unfair in the case of case of Byrne and Frew against Australian airlines. One of the decisions given by the High Court is that the words unjust, unfair and harsh treatment was not implied in circumstances of the case under consideration. This is after Justice Hill, of the Federal Court found out that Australian airlines did carry out a proper investigation on the conduct of the accused, and it specified the type of misconduct they were accused for. Further on, Justice Hill was able to denote that Australian airline proved that it gave the defendantâ€™s time to defend themselves against the allegations (Gooley, Radan and Vickovich, 2007). In the Australian legal system, there are very few laws that explain the concept of a fair procedure under employment contracts. In Bryne and Frew, the appellants appealed against the lower courtâ€™s decision that Australian airlines followed the correct procedure, and was fair in dismissing the appellants. Carter (2006) identifies the following facts that the courts normally consider when identifying a correct procedure,
- Notifying the employee on the accusations against him or her.
- Giving them an opportunity to defend themselves.
- Carrying out proper investigations.
- Solving the case in the same manner that previous similar cases have been solved.
It is these procedures that Bryne and Frew argued that the company breached. However, in defending themselves, Australian airlines argued that in circumstances where the court finds out that the company breached the procedures of employment, then the court should consider that the words harsh, fair and unjust are not implied words, and hence they are not part of the employment contract. The court agreed on this assertion by Australian airlines, and refused to imply those terms in the contract. By refusing to imply these words, and relying more on express words, and statutes, the court did not use the principles of relational contract theory in coming up with their decisions (Paterson and Duke, 2012). It is important to denote that an employment contract is an example of a relational contract, and this is because it does not create rigid conditions and terms when it is being initiated. However, it creates an evolving relationship, whereby parties agree to cooperate with each other, for their mutual benefits (Gooley, Radan and Vickovich, 2007). On this basis, an important characteristic of a relational contract is that parties agree to cooperate with each other, based on the principles of good faith. By refusing to imply those words in an employment contract, the court affected this principle of good faith. This ruling limited the kind of damages that employees could get. This had an effect of limiting the applications of the ruling contained in Gregory vs. Philips (Butler, Duke and Wilmott, 2013). According to the principles of good faith in the employment law, employees expect an employer to treat them fairly, and in a just manner. These are implied expectations, and they are not expressed. By refusing to imply these words, the courts played a role in destroying this principle of good faith, a major characteristic of relational contracts. A relational contract is also based on mutual trust and confidence. This is a major principle that guides an employment contract, and if it is breached, this trust and confidence amongst the parties to the contract would be destroyed. By recognizing that Australian airline breached the procedures of dismissing employees, and then refusing to imply the words harsh, unjust and unfair, in an employment contract, did not help in creating a sense of mutual trust and confidence to the employer (Gooley, Radan and Vickovich, 2007). This had an effect of portraying the company, as one which does not carter for the need of its employees. Conclusion:
In conclusion, the court refused to honor the implied term, basically relying on the law, and express facts. In refusing to honor this term, the court was of the opinion that the word, harsh, unfair, and unjust did not satisfy the test that allows terms to be implied by law. For a term to be able to be implied by law, it has to satisfy two major conditions; applicable to a defined and specific category of contracts, and suitable in a manner that it would be applied in all similar contracts. The test of necessity had to be used under this scenario. The case did not pass this test, and hence, these words could not be implied. Furthermore, the terms identified did not pass the bystander test. The term harsh, unjust and unfair are not very obvious, or necessary for the contract under consideration to operate. On this basis, it could not be implied. References:
Barker, D. (2000). Essential Australian Law
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. Chatswood, NSW: LexisNexis Butterworths. Macneil, I. R., & Evanston, I. (2013). Relational contract theory: unanswered questions : a symposium in honor of Ian R. MacNeil.
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