Implied Terms

Question 1

In what ways can terms be implied?

Answer 1

(1) By common law
(2) By statute
(3) By custom or usage

Question 2

Sale of Goods Act - Section 12 (Implied terms about title, etc) - What is the gist?

Answer 2

Give buyer a remedy against seller, if seller does not have title to sell the goods that he has contracted to sell to buyer.
Buyer entitled to recover from seller, even if buyer has used the goods over a period of time prior to discovery.

Two warranties given by 12(2) - Warranties of freedom from encumbrances and quiet possession - allows buyer to enjoy use of goods without interference by third parties.

Warranties vs condition (whether or not seller has title). Breach of warranty can claim for damages, breach of condition = reject goods and terminate contract.

Question 3

Sale of Goods Act Section 13 (Sale by description)

Answer 3

Protection for buyer that goods will correspond with description. Comes into play when the contract for sale is formed BY description, and the buyer entered the contract IN RELIANCE upon description by seller

Question 4

Sale of Goods Act Section 14 (Implied terms about quality and fitness)

Answer 4

Two important conditions:

1. Goods must be of satisfactory quality
2. Goods must be reasonably fit for purpose - if buyer wants to use item for unusual purpose, he must disclose that to the seller prior to contract formation in order to invoke the implied term.

Question 5

Sale of Goods Act Section 15 (Sale of Goods by sample)

Answer 5

(1) Bulk will correspond with sample in quality
(2) Goods will be free from defect making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample

Question 6

Basis of implying terms by statutes?

Answer 6

1. Courts are generally willing to imply terms into a contract because it is “hard to imagine trade conducted on any other terms”
2. Legislative policy to protect the expectations of the consumer, in cases where they are in a disadvantaged position vis-a-vis the business
3. How about caveat emptor (let the buyer beware)?

Question 7

Terms implied from usage or custom - what are the two requirements

Answer 7

Terms may be implied into a contract from usage or custom of the industry/market of the contracting parties provided:

(1) It must be a “known” usage
(2) It cannot be altered by the contract - meaning it should not be inconsistent with the express terms of the contract

Question 8

What is a “known” usage that can be implied into a contract? Case proof?

Answer 8

Cunliffe-Owen v Teather and Greenwood (1967)

Stated that “known” is that the custom or usage must be “notorious, certain and reasonable”, so well known that outsiders making reasonable enquiries would be made aware of it - and that the practice to be recognised as a known usage must be a practice that has been established as an obligation with BINDING EFFECT.

This differentiates between a binding obligation from a repetitive behaviour that occurs in the industry, or mere courteous practices. It has to be a course which is HABITUALLY FOLLOWED because parties have a LEGALLY BINDING RIGHT TO DEMAND IT - and i think English law doesn’t necessarily codify these “known usages” to offer flexibility for these industries to innovate and alter practices according to socioeconomic conditions.

Question 9

Terms implied by the courts - what are the two types? How are they differentiated?

Answer 9

Terms implied:

(1) In fact
(2) In law

Terms implied by the courts can be seen on a scale based on necessity and reasonableness. Terms implied in fact are supposed to be of absolute necessity to give effect to the presumed intentions of the contracting parties, whereas terms implied in law are supposed to be consistent to the nature of the contract. Of course terms implied in law are not as clear-cut, and are seen to be of “reasonable necessity” - whatever that means

Question 10

Tripartite of Terms implied in fact cases

Answer 10

1. The Moorcock (1889)
2. Shirlaw v Southern Foundries (1926) Ltd (1939)
3. Attorney-General of Belize v Belize Telecom Ltd (2009)

Question 11

What is the significance of The Moorcock?

Answer 11

Whether or not D had a contractual obligation to ensure the berth was reasonably safe - The court implied a term and said it ‘gave effect to the presumed intention of the parties’, based upon reason, upon the need to give “business efficacy” to the transaction. It wouldn’t make sense that a contract could exist, whereby the shipowner cannot rely that the berth he was contracted to dock at was not safe for his ship.
“What the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men” - BUSINESS MEN meaning reasonable people who have knowledge of the relevant background, with knowledge of practical consequences.

Question 12

How about Shirlaw v Southern Foundries (1926) Ltd (1939)

Answer 12

Essentially endorses the Moorcock, that gives the “officious bystander test” that would suggest an express provision for their agreement, and they would respond “Oh, of course!”

Question 13

What about Attorney-General of Belize v Belize Telecom Ltd (2009)?

Answer 13

Lord Hoffman in the Privy Council said:

(1) Implying terms is an exercise in the construction of the contract as a whole, not necessarily reflecting the subjective intentions of the parties (they may not even know it themselves - legal fiction), but what the contract would mean to a reasonable person with all the background knowledge that is reasonably afforded to such a person.
(2) The business efficacy test on its own will not work without considering the construction of the contract, since the contract may very well work without implying the term for parties to perform their express obligations, but the consequences may contradict what a reasonable person would understand the contract to mean (i.e. Moorcock - not necessary to allocate assumption of risk of damage to either party - but it was fair and reasonably to imply that the jetty owner bore responsibility) and the Officious bystander test risks overthinking into the subjective intentions of the parties.
(3) Rule that the implied term cannot contradict an express term is subject to contextual interpretation of the express term - THIS IS TO AVOID DEFEATING THE OVERRIDING PURPOSE OF THE TERM AND CONTRACT. E.g. Belize, where the appointment and removal of board members will subject to very technical and specific terms regarding the types and ownership of shares. Privy Council implied term that board member would vacate when there was no longer any shareholder with required shareholding to support his appointment, to avoid defeating the overriding purpose of representation and appointment of board members with shareholder interests.

Question 14

Pros and Cons of Lord Hoffman’s Implication of terms judgment?

Answer 14

Offers a coherent framework between interpretation and implication. Makes a lot of sense in accordance to the objective principle.

However, may be a bit too liberal approach that blurs the line between necessity and reasonableness. The business efficacy test is strictly based on necessity, whereas by objectively ascertaining the construction of a contract from the perspective of a reasonable person, it injects an element of commercial reasonableness to “interpret a contract”. In truth, one could view implication as actually “ADDING to the contract according to factual necessity”

Question 15

Main issue of implication in law? Highlighted in which case

Answer 15

Necessity vs reasonableness. Highlighted in the CA and HL judgments of Liverpool City Council v Irwin (1976)

Denning advocated for a test of reasonableness, arguing that implied terms decided as a matter of law are based on what is reasonable - in arguing that it would be reasonable to imply a duty of landlords to take reasonable care of the premises. CA rejected this, and so did Wilberforce in HL, who stuck to the test of necessity - stretched the definition of necessity is determining that it was necessary for tenants to have premises maintained by the landlord. Arrived at the same outcome of Denning, but “by a less dangerous route”.

Not so much about necessary vs reasonableness, Wilberforce’s approach is that of what was “reasonably necessary having regard to the context and the price”, or that when a term is implied in law, the court is entitled to take into account “wider considerations” not based on necessity alone

Question 16

How did Lord Cross of Chelsea (also in Liverpool CC v Irwin at HL) differentiate between terms implied in law and in fact

Answer 16

Terms implied in law: Implying a term that lays down a general rule for all contracts of a certain type, expressing the contractual relationship OF COMMON OCCURRENCE between classes of persons (e.g. employer-employee, landlord-tenant) - BASED ON GENERAL CONSIDERATIONS whether a prima facie implication would be reasonably necessary to insert

Terms implied in fact: Not about laying down a primary facie rule applicable to all cases, but a very precise and particular contract by inserting a term not expressed, and the court would imply a reasonable term that would be necessary to give the contract “business efficacy”, where two reasonable parties would have agreed without hesitation to its insertion.

Question 17

Scally v Southern Health and Social Services Board (1992)

Answer 17

Issue is whether the employers (D) had a duty to employees to take reasonable steps to inform their employees of their rights and entitlements (beneficial - regarding pension) - to which HL ruled that they did on a very narrow subcategory, albeit approximated to the employer-employee class of contracts, where

(1) the right affords advantages to the employee, contingent on the employee taking action
(2) resulted from terms that were negotiated with a representative body, not involving the individual employee
(3) employee cannot be reasonably expected to be aware of the term unless drawn to his attention

Question 18

What is the case where the courts brought in considerations of public policy about implying a term in law?

Answer 18

Crossley v Faithful and Gould Holdings Ltd (2004) :

Whether or not there was an implied term of any contract of employment that employer will take reasonable care for the economic well-being of employee.
Courts considered 3 elements:
(1) whether proposed term is consistent with existing law
(2) how it would affect parties
(3) wider policy considerations of fairness

In this case, it would not be fair to impose such a duty on employers

Question 19

To wrap up: (1) Why do courts imply terms?

(2) What if recognised classes of contracts become more specific?
(3) Can there every be a clear distinction between implied in fact vs implied in law?

Answer 19

1. Imply terms to allocate burden or reduce benefits to parties. In order to accord reasonableness to potentially one-sided contracts. For terms implied in law, its allocating risks and duties fairly and reasonably according to wider considerations (policy, classes of relationship, etc) - to achieve fairness
2. Terms implied in law will have even less general application, and it muddles the distinction between terms implied in fact and in law - in such a situation, perhaps Hoffman’s views in Belize would make the most sense, that reasonably necessary would become the measure - as ascertained by the reasonable man in the Clapham Omnibus
3. Nope! It’s a continuous spectrum, and perhaps Scally v Southern Health and Social Services Board (1992) is a good example of how implication in law may be so specific - not particularly relevant to any other employer-employee relationship.

Question 20

Why should the court imply terms?

Answer 20

1. Protects reasonable expectations of parties
2. Ad hoc gap fillers - implied in fact - that contracts would be defeated otherwise without such implications, and you don’t want the overriding purpose of a contract to be defeated because of such a gap (Belize, Moorcock)
3. What the courts regard as a fair and practical allocation of risks between contracting parties, pursue ideas of fairness, and offering a good framework for parties to contract that is for general application to recognisable classes of contract

Question 21

Singapore Courts - Implying terms in law for public policy or necessity? Case?

Answer 21

Jet Holding Ltd v Cooper Cameron

Court held that the two defendants (first defendant - Cameron is the main contracted party with P, second defendant- Stork was sub-contracted by C) owed each other duty to take reasonable care to perform respective parts of contract they entered into
That C’s failure to provide dimensional drawings is not a condition precedent to S’s failure that resulted in the fractured slip joint.

Court’s reasoning was based on justice, fairness and public policy, NOT NECESSITY! Singapore acknowledges necessity test and reasonableness, but also seems to imply terms in law based on policy reasons mostly (Ng Giap Hon)

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