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

A car was lost when a ferry sank. The owner's agent arranged carriage via an oral contract and was not asked to sign a risk note containing an exclusion clause, although he and the owner had previously done so. The court held the clause was not incorporated.

Facts

The appellant, Mr McCutcheon, asked his brother-in-law, Mr McSporran, to arrange for his car to be shipped from the Isle of Islay to the mainland. Mr McSporran took the car to the respondents’ office, David MacBrayne Ltd, the ferry operators. He paid the fare and was given a receipt. The contract was made entirely orally; Mr McSporran was not asked to sign any document. The vessel carrying the car, the ‘Lochiel’, sank due to the respondents’ admitted negligence in navigation, resulting in the total loss of the car. In previous dealings, both Mr McCutcheon and Mr McSporran had sometimes been asked to sign a ‘risk note’ which contained numerous conditions, including clauses that exempted the carrier from liability for loss or damage due to negligence. However, the practice was inconsistent; sometimes they signed, other times they did not. The appellant himself had only signed these notes on four occasions and had never read the conditions.

Issues

The central legal issue was whether the conditions contained within the respondents’ standard risk note were incorporated into the oral contract made for the carriage of the car. Specifically, could an exclusion clause be incorporated into a contract by a prior ‘course of dealing’, even when the parties’ conduct in previous transactions was not consistent and the party to be bound was unaware of the specific terms?

Judgment

The House of Lords unanimously allowed the appeal, finding that the exclusion clauses were not incorporated into the contract. Their Lordships held that for terms to be incorporated by a course of dealing, that course of dealing must be regular and consistent.

Lord Reid’s Reasoning

Lord Reid rejected the notion of constructive knowledge being sufficient. He emphasised that the course of conduct had to be consistent to imply that the parties intended to contract on the same terms as before. He stated:

In the present case the respondents’ practice was not consistent. Sometimes the appellant or his agent was asked to sign and sometimes not. I am not satisfied that there was any definite and consistent course of dealing…

He argued that the only way the respondents could succeed was if it could be shown that the appellant had actual knowledge of the conditions and had assented to them being part of the contract. Since Mr McCutcheon had never read the conditions, he could not have had actual knowledge of them. Thus, consent could not be inferred.

Lord Devlin’s Reasoning

Lord Devlin provided a powerful analysis, distinguishing between the effect of a signature and the effect of a course of dealing. He argued that signing a document binds a person to its terms, whether they have read them or not. However, in the absence of a signature or any contractual document for the transaction in question, the situation is different.

Previous dealings are relevant only if they prove knowledge of the terms, actual and not constructive, and consent to them. Consent may be express or implied. If a man has been given a document containing terms and has been given a reasonable opportunity of reading them, he may be held to have impliedly agreed to them.

Crucially, he asserted that this consent must be given to the specific contract at hand. As no document was presented on this occasion, there was no basis for inferring consent. He concluded that the respondents had failed to demonstrate that the appellant had consented to the inclusion of the exemption clauses in this particular oral contract.

Implications

The decision in McCutcheon v David MacBrayne Ltd is a landmark authority on the incorporation of contractual terms, particularly exemption clauses, by a course of dealing. It establishes that a course of dealing must be both regular and consistent to be effective. It also reinforces the principle that, in the absence of a signed contractual document for a specific transaction, a party cannot be bound by onerous terms merely because they have encountered them in previous, inconsistent transactions, especially if they have no actual knowledge of the terms’ content. The case highlights a judicial preference for protecting a party from terms they have not clearly and consistently assented to, particularly in the context of oral agreements.

Verdict: The appeal was allowed. The respondents (David MacBrayne Ltd) were found liable for the loss of the car as the exclusion clauses were not incorporated into the contract.

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