McCutcheon v David MacBrayne Ltd [1964] UKHL 4 (21 January 1964)

Mr McCutcheon's car was lost when the respondent's ship sank due to negligent navigation. The carrier sought to rely on exclusion clauses from previous dealings, but no risk note was signed on this occasion. The House of Lords held that previous course of dealing cannot incorporate terms into a contract where no contractual document was used on the relevant occasion.

Facts

The appellant, Mr McCutcheon, a farm grieve in Islay, asked his brother-in-law Mr McSporran to arrange shipment of his car to the mainland via the respondent carrier, David MacBrayne Ltd. Mr McSporran paid the freight and received a receipt, but was not asked to sign the respondent’s standard ‘risk note’ containing extensive exclusion clauses. The ship ‘Lochiel’ sank due to negligent navigation and the car was lost. Mr McCutcheon sued for the agreed value of £480.

Previous Practice

The respondents’ usual practice was to require consignors to sign risk notes containing conditions before accepting goods. On previous occasions, both Mr McCutcheon and Mr McSporran had signed such notes, though neither had read them or knew the specific terms. Mr McSporran testified that sometimes he signed and sometimes he did not.

Issues

The central issue was whether the respondent’s standard conditions, which would exclude liability for negligence, formed part of the oral contract made on this occasion when no risk note was signed. Specifically:

• Could conditions from previous dealings be implied into the current contract?
• Could knowledge gained through previous transactions bind the parties to terms not expressly incorporated?

Judgment

The House of Lords unanimously allowed the appeal, restoring the Lord Ordinary’s decision in favour of Mr McCutcheon.

Lord Reid

Lord Reid held that the contract was oral and complete without any additional terms. The receipt given after payment could not be regarded as containing contractual terms. The facts did not support incorporation by course of dealing because there was no consistent practice and neither party had the conditions in mind when making this contract.

Lord Hodson

Lord Hodson emphasised that the respondents had not sought to impose any conditions on this occasion. The ticket cases from Parker v South Eastern Railway were distinguished because those involved contractual documents being handed over. Here, there was no such document.

Lord Guest

Lord Guest stated that knowledge of the existence of conditions could not by itself import acceptance of those conditions into a different type of contract. The practice was to insist on written contracts, but on this occasion a verbal contract was made without reference to conditions.

Lord Devlin

Lord Devlin delivered a particularly robust judgment, noting that previous dealings are relevant only if they prove actual knowledge of terms and assent to them. He stated that no implication can be made against a party of a term unknown to them, and that there can be no conditions in any contract unless brought into it by expression, incorporation or implication.

Lord Pearce

Lord Pearce held that the respondents were seeking to establish an oral contract by reference to a course of dealing which always insisted on a written contract. The consistency which might give rise to an implication was absent.

Implications

This case established important principles regarding the incorporation of terms by course of dealing:

• Previous dealings cannot incorporate terms into a later contract where no contractual document is used
• Knowledge that a party usually imposes conditions is insufficient to incorporate those conditions into a contract made without them
• For terms to be implied by course of dealing, there must be actual knowledge of the terms and consistent practice
• The party seeking to rely on exclusion clauses must take proper steps to incorporate them into each contract

The case represents a significant limitation on carriers’ ability to rely on exemption clauses and emphasises the importance of properly incorporating terms into each individual contract.

Verdict: Appeal allowed. The interlocutor of the Second Division was recalled and the Lord Ordinary’s interlocutor restored, with costs awarded to the appellant.

Source: McCutcheon v David MacBrayne Ltd [1964] UKHL 4 (21 January 1964)