Implication of Terms Flashcards
Old Test of Business Efficacy
Moorcock: a term will only be implied in if it is necessary for the business efficacy of the contract. However, this has been criticised on several grounds. First, there is the issue that what amounts to the business efficacy is often in dispute, hence why the parties had to go to court. Second, Andrews has criticised it for being ‘too pliable’ and allowing an inappropriately broad range of facors into account.
Old Test of Officious Bystander
Shirlaw v Souther Foundries: this is a test by which a hypothetical bystander asks the parties if they would write the term down and the implication only occurs if the answer would be ‘of course’.
Spring v National Amalgamated Stevedores and Dockers Society: not applied as plaintiff would not have known what it meant;
R Griggs Group v Evans: commissioned sign for doc martins and if it had been asked whether plaintiff had IP then the answer would have been ‘of course not’.
There is a danger this test will slide into reasonable expectations, but it must focus on the actual, subjective reactions of the parties.
Cf the result of Equitable Life Assurance Co. Ltd v Hyman and Lord Grabiner’s criticism. The effect of the implied term basically bankrupted the ELA. He suggests it should still be necessary before a term is implied (ie, no other way of understanding the text for it to work).
Hesitancy to imply terms into contractual circumstances
Philips Electronique: There is a hesitancy of the courts to imply in a term into complex commercial transactions where there has been a closely negotiated compromise. In this instance, it was obvious that if the term had been suggested it would have been hotly contested.
Andrews also suggests the narrower officious bystander test is able to beat the bsuiness effiacy test on the basis of this test, where the former was not met but the latter was.
The New and Improved Lord Hoffmann text
Belize: this was Lord Hoffmann assimilating the test of implied terms with interpretation. The test is now ‘what would the contract have been reasonable understood to mean’. However, this test itself should not be misread: the test is still strict, and Lord Hoffman is noting that it must be necessary for the reasonable reading that an implied term is used.
Thus, although it was necessary for the implied term to be reasonable, it was not enough for it to be merely sufficient.
Rowing back on Belize
Marks & Spencer v BNP Paribas Securities: Belize has now been rowed back as well - Lord Hoffmann’s legacy has come under serious attack as of late. This characterises Belize as ‘an example of characteristically inspired discussion’, but no more than that. It seems the new tests are in fact the old ones, applicable in the alternatives.
Business efficacy: it must be necessary to imply the term in otherwise the contract would not work at all;
Officious Bystander: this is question of what the reasonable observer ‘in the shoes of the parties’ would have understood the contract to mean.
Further, and more importantly, implication has been reaffirmed as a separate process and one which can only be carried out after the process of intepretation has occurred (cf Devani v Wells).
Criticism of the Belize Test
Sembcorp Marine Ltd v PPL Holdings Ltd: criticised belize on the basis it merely used a reasonable test.
Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc: Lord Hoffmann still required it to be necessary to imply the term in, as well as reasonable.
Is there any difference?
Given the officious bystander is now an objective figure (Marks and Spencer), it would seem as if the law is not too far off where it would have been for Lord Hoffmann’s approach. However, there are the requirements (limits) that it must be ‘so obvious it goes without saying’ or that ‘it was necessary for business efficacy’. Suggests that Lord Hoffmann inadvertantly diluted the test by subsuming the implication test within the interpretation one.
The same criticisms apply for both: McGaughan: “Judges have more freedom to imply terms. This undermines the primacy of express terms and commercial certainty. “
Academic Comment (FOR)
Kramer: no difference linguistically in silence. Cf the thought experiment in which humans communicate predominantly with silence, and there were ‘canons of interpretation’ for silence. In addition, consider a ‘silences’ dictionary documenting lengths of silence, circumstances and when they were present etc. Main issue is practical, not theoretical.
Hooley: makes things clearer by making it evident the process of interpretation is the same as implication. The will of the parties is what is being looked at in both instances. Hooley also draws attention to the fact that the reasonable intepretation of what the parties must have meant is still very strict when the test if necessity is applied.
Grabiner: the process of implication does lie properly in interpretation, but that it is an intrusive process and should only be used when the normal words present would produce an unworkable result.
Academic Comment (AGAINST)
Can Lord Hoffmann’s test take into account other features of implying in terms? For instance, hotly contested negotiations where there are tactical silences to plaster over deep divisions in the contract.
Davies: in Phillips Grand Electronique (a good example of the above consideration), notes that the process of implication is altogether more ambitious because the parties had not considered the matter, hence why it wasn’t a term.
Implication must follow interpretation
(M&S) Implication should follow the process of interpretation because it is necessary to first work out what the parties intended before finding in extra terms. This suggets the implied term is purely additional - in reality, it should really just be an iterative process, albeit with a higher standard for reaching conclusions from silence. This might just be easier if they are kept separate using taxonomical differences.
Subsequent cases after M&S v Paribas
Wells v Devani: asserts that implication is not a different process from interpretation. Albeit, the fact that it is possible to use implication to complete a previously incomplete contract is a bit odd, given if there is not a complete contract then ex hypothesi there was not enough to find the parties had an objective intention which was shared (too uncertain).
Trump International Golf Course
The process of contract interpretation is an iterative process by which implication and interpretation are carried out simultaneously. This is a bit hard to swallow given it would suggest implication is not just carried out after interpretation (which it would have to be if it was a separate process).
Lord Sumption’s View on Belize
“In Belize… Lord Hoffmann… came close to abolishing the implication of terms as a distinct legal concept… It was all, he said, a question of construction. But this, with respect, cannot possibly be right. The point about an implied term is that the parties have not expressed it… It is not possible to identify by a process of construction something which ex hypothesi is not in the agreement at all…”
He also thinks the issue is that if the process of interpretation is combined with implication, and we use Lord Hoffmann’s approach in ICS of reasonable interpretation (ie, commercial common sense when there is ambiguity and choosing a non-common sense interpration based on the language).
Lord Hoffmann’s view on ICS
Lord Hoffmann argues that words do not have an objective meaning and the meaning they convey is inherently uncertain. When ambiguous we can choose between a reasonable interpretation with reference to commercial common sense. But happens when they are crystal clear, but totally against common sense (ie just doesn’t work)? In this instance the court will probably fix them because the language is not absolute.
Nonetheless, the contract does mark an important point of crystallisation of the intent of the parties. Further, most parties rely on the ordinary meaning of the words (though there is the classic ‘they can’t have meant that’). It is important for party autonomy, but so is not forcing them to follow dictionary approaches.
Lord Hoffmann’s view of Belize
It is still a very tight test: “They [the courts] will imply a term only if satisfied that it is what the agreement must mean. Not “might mean” or “should reasonably have meant” but must mean.” They will only add it in if there would be no way the contract could be understood otherwise (ie, still necessity).
He may have not made this clear enough, given he seems to have said it was just interpretation (which now includes the commercial reasonableness test when there is ambiguity, which is much more common for silence).
