A term may either be expressed or implied. An express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contract.
Terms implied in fact The
Privy Council established a five-stage test in
BP Refinery (Westernport) Pty Ltd v Shire of Hastings. However, the English Court of Appeal sounded a note of caution with regard to the
BP case in
Philips Electronique Grand Public SA v British Sky Broadcasting Ltd in which the Master of the Rolls described the test as "almost misleading" in its simplicity. •
Reasonableness and equitableness: The implied term must be reasonable and equitable. In
Biotechnology Australia Pty Ltd v Pace, it was held a term that imposes a significant detriment or burden on the other party is unlikely to be equitable. •
Business efficacy: The implied term must be necessary for the business efficacy of the contract. For instance, if the term simply causes the contract to operate better, that does not fit this criterion. This is the principle laid out in
The Moorcock. The presiding
judge created a quaint concept of an
officious bystander; if the
officious bystander were to propose a term and both the parties would be likely to reply with a testy "oh, of course", the term is implied. •
Obviousness: The term is so obvious that it goes without saying. Furthermore, there must be one and only one thing that would be implied by the parties. For example, in
Codelfa Construction Pty Ltd v State Rail Authority of NSW, a term regarding the inability of construction company to work three shifts a day could not be implied because it was unclear what form it would have taken. In
English law, this principle was established in the case of
Spring v NASDS, in the context of a
trade union membership contract. •
Clear expression: The term must be capable of clear expression. No specific technical knowledge should be required. •
Consistency: The implied term may not contradict an express term. The
High Court of Australia has ruled that the test in
BP applies only to
formal contracts. In the case of an
informal contract, where the parties have not attempted to stipulate the full terms, the courts should imply a term upon referring to the imputed intention of the parties, provided that the particular term is necessary for the effective operation of the contract. In implying terms in an informal contract, the High Court has suggested that a flexible approach is required.
Terms implied in law These are terms that have been implied into standardized relationships.
Common law •
Liverpool City Council v Irwin established a term to be implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in a reasonable state of repair. •
Wong Mee Wan v Kwan Kin Travel Services Ltd established that when a tour operator contracts to provide services, a term is implied that those services will be performed with reasonable duty and care.
Statutory The rules by which many contracts are governed are provided in specialized statutes that deal with particular subjects. Most
countries, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, each
American state except
Louisiana has adopted Article 2 of the
Uniform Commercial Code, which regulates contracts for the sale of goods. The most important
legislation implying terms under
United Kingdom law are the
Sale of Goods Act 1979, the
Consumer Protection (Distance Selling) Regulations 2000 and the
Supply of Goods and Services Act 1982 which imply terms into all contracts whereby goods are sold or services provided.
Terms implied by custom or trade One is generally bound by the custom of the industry that one is in. To imply a term due to custom or trade, one must prove the existence of the custom, which must be notorious, certain, legal and reasonable.
Terms made available on request In
England and Wales, an appeal court ruling in 2010 confirmed that the phrase "terms and conditions available on request" could create a binding obligation to comply with the terms. In
Rooney v CSE Bournemouth Ltd., an aircraft-owner whose plane was covered by a maintenance work order issued using this terminology, argued that wording was not sufficient to incorporate the company's standard terms and conditions. The
High Court initially agreed with this position but the
Appeal Court overruled this, arguing that a "
reasonable person" would have interpreted this phrase as intended to incorporate the terms.
Course of dealing If two parties have regularly conducted business on certain terms, the terms may be assumed to be same for each contract made, if not expressly agreed to the contrary. The parties must have dealt on numerous occasions and been aware of the term purported to be implied. In
Hollier v Rambler Motors Ltd four occasions over five years was held to be sufficient. In
British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd written terms were held to have been implied into an oral contract in which there was no mention of written terms.
Good faith It is common for lengthy negotiations to be written into a heads of agreement document (sometimes unsigned, and sometimes labelled 'subject to contract') that includes a clause to the effect that the rest of the agreement is to be negotiated. Although these cases may appear to fall into the category of agreement to agree,
Australian courts will imply an obligation to negotiate in
good faith provided that certain conditions are satisfied: • Negotiations were well-advanced and the large proportion of terms have been worked out; and • There exists some mechanism to resolve disputes if the negotiations broke down. The test of whether one has acted in good faith is a subjective one; the cases suggest honesty, and possibly also reasonableness. There is no such implied term under
UK common law: an attempt was made by
Lord Denning in a series of case during the 1970s and 1980s but they are no longer considered 'good law'. European legislation imposes this duty, but only in certain circumstances. The
Unfair Terms in Consumer Contracts Regulations 1999 reg 8 renders ineffective any 'unfair' contractual term if made between a seller or supplier and a consumer. Regulation 5 of the statutory instrument further elaborates upon the concept of 'unfair', which is rather novel to English law. 'Unfair' is a term in
standard form (specifically that was not individually negotiated) that "causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer". It must also be shown the term lacks 'good faith'; the claim failed in
Director General of Fair Trading v First National Bank plc, as striking down a relatively high
interest rate (falling short of
extortionary rates) would mean borrower could have safely ignored the interest rates in its loan agreements (see UK requirements for consumer financial advice/advice waivers in major consumer loan agreements) and that high-rate lenders would receive no interest. =="Subject to" contracts==