Lecture 10-Implied Terms

Question 1

Implied Terms

Answer 1

Terms can be implied into a contract in order to make up for the omissions of the parties

There is a fine line between filling the gaps and rewriting the contract

Question 2

Implied by

Answer 2

Terms implied by statute

Terms implied by custom

Terms implied by the courts

Question 3

Terms implied by statute

Answer 3

Over the years, terms which have been formally implied by the courts have very often been given statutory authority e.g. Sale of Goods Act 1979

Based on rules of law and public policy (not the intention of the parties).

Section 12 implies a term that the seller has the right to sell the goods

Section 13 implies a term that if goods are sold by description, they should match that description

Section 14 implies a term that the item bought will be of merchantable (satisfactory) quality

Question 4

Implied by Custom

Answer 4

Hutton v Warren (1836)
The court held that the tenant was entitled to an allowance for the seeds and labour on leaving the tenancy, on the basis of custom

Some terms are implied on the basis that they were customary in a particular trade, profession or locality

Binds both parties whether they knew about that custom or not.

Question 5

Custom Case Authority

Answer 5

British Crane Hire v Ipswich Plant Hire [1975] Examine the relationship and context of the parties and agreement

Question 6

Terms implied by Courts

Answer 6

Terms implied in law (implication in common law)

Terms implied in fact

Question 7

In Law

Answer 7

Liverpool City Council v Irwin [1976]
Not about the intention of the parties.

Question 8

Requirement

Answer 8

terms will be implied in law where:

a) the agreement is incomplete (gap in the agreement)

b) the agreement is of a type that is sufficiently common (matter of public policy)

c) the term implied is one which is necessary

Question 9

Defined Type

Answer 9

Lister v Romford Ice & Cold Storage Co [1957]
Every contract of employment contains an implied term to the effect that the employee will serve the employer faithfully

Question 10

Necessity

Answer 10

Implying a term in law reflects “the court’s perception of the nature of the relationship between the parties and whether such an implied term is suitable or ‘reasonable’ for incorporation in all contracts of the particular type in question.” (McKendrick, Contract Law p190 (13th ed, 2019))

The notion of necessity is predicated on broader considerations of public policy (creates precedent for future contracts)

Question 11

In Fact

Answer 11

Unlike terms implied in law, the purpose of implying terms in fact is to represent the true intention of the parties

Question 12

Two tests

Answer 12

1.Business Efficacy
2.Officious Bystander

Question 13

Business Efficacy

Answer 13

The Moorcock (1889)
There was no express term as to the suitability of the river bed for mooring a ship there – Court of Appeal held that term should be implied (i.e. that the river bed was suitable for mooring a ship)
Making the contract workable in a commercial sense.

Question 14

Requirements

Answer 14

It is not enough to demonstrate that the contract would be more effective with the implied term

The term must also satisfy the necessity test, and must reflect the intention of the parties

Question 15

Officious Bystander

Answer 15

Shirlaw v Southern Foundries Ltd [1939]
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying

It’s another way of asking the reasonable person what they would understand the contract to mean, given the state of knowledge of the parties

Question 16

State of Knowledge?

Answer 16

Spring v NASDS [1956]
So where one of the parties would have responded to a suggestion that a term be implied by saying ‘What’s that?’ rather than ‘Oh, of course’, then the term cannot be implied.

In practice, this means that the rule cannot be applied if one of the parties is unaware of the term that it is sought to imply into the contract

Question 17

Consolidation

Answer 17

BP Refinery (Westernport) Pty v Shire of Hastings (1977)
It must be reasonable and equitable;

It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

It must be so obvious that ‘it goes without saying’;

It must be capable of clear expression;

It must not contradict any express term of the contract

Question 18

Shifted

Answer 18

Attorney-General of Belize v Belize Telecom Ltd [2009]

Lord Hoffman stated that in implying terms into contracts, you need to examine what the contract would be understood to mean by a reasonable person with knowledge of the relevant commercial background. (attempting to consolidate the 5 principles/ taking into account commercial principles)

Question 19

Opinion on the tests

Answer 19

Lord Hoffman went on to say that the tests traditionally applied by the courts were best regarded:

“not as a series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so.”

Question 20

Retreat

Answer 20

Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd. [2015]

[T]he law governing the circumstances in which a term will be implied into a contract remains unchanged following Belize Telecom” (paragraph 24)