Trade practices that are certain, notorious and reasonable will bind a contracting party who is ignorant of the practice. This article analyses these three criteria and reconciles them with contract doctrine. It argues that each of the criteria serves an important function in balancing the interests of contracting parties, and achieving an objectively fair outcome. The article critiques in particular the recognition of a trade practice in a banking case, Tidal Energy v Bank of Scotland, and argues that it failed to promote the consumer protection function of the criteria as evidenced by previous cases.
Trade practices, namely “settled and established” understandings or ways of engaging in commercial activity,1
can have a significant influence on the legal effect of a contract. Practices develop in all industries to facilitate efficient operation, and some practices are eventually absorbed into law,2
through adoption by the courts or in legislation. For example, in Kum v Wah Tat Bank
Lord Devlin said that a proved practice “takes effect as part of the common law”, and in Goodwin v Robarts
Cockburn CJ stated that courts recognise the usages that attach to trade, such that what was once mere usage, becomes “engrafted upon, or incorporated into, the common law, and may thus be said to form part of it”.5
Legislative examples include the UK’s Bills of Exchange Act 1882, and the Sale of Goods Act 1893, which codified the common law which had been heavily influenced by the practices of merchants.