Laws2111 Lecture9a 2011

Implied Terms

  • Rectification: a minor ‘fix’ of a term that was expressly agreed to, but was misrecorded
  • Implied term: a term not expressly agreed to, but ideally what the parties WOULD have agreed to had they thought about it
  • Generally more willing to imply a term to avoid frustration of the contract

Implied By Custom

  • Standard term in all contracts of that type will be implied if it was omitted (Hutton v Warren)
  • Requires (as per High Court in Con-Stan v Norwich Winterhur)
    • Existence of the Custom (question of fact)
    • Must be so well known it can be ‘assumed that everyone knows/ought to know it’
    • Not directly conflict the express terms

Implied by Course of Dealings

  • Specific practice established between these two parties
  • Must establish consistent dealings over a reasonable period relating to the same subject matter on those terms
  • Must be present consistently in dealings – sometimes absent/sometimes unsigned documents are unlikely to be held to be implied over multiple dealings (McCutcheson v McBrayne)
  • Must still be on a contractual document – regularly signing a delivery docket is not sufficient due to its non-contractual nature (Hill v Wright)

Implied in Fact

  • Based on the ‘presumed intent of the parties’
  • Classical tests focused on:
    • Business efficacy (necessary to give commercial effect to a transaction) as per Moorecock
    • Officious Bystander (so obvious it goes without saying – what would a third party listening to negotiations have though the implied term would be) (Shirlaw v Southern Foundries)
  • Modern Approach: BP Refinery v Hastings
    • Reasonable and Equitable (conforming with presumed intent)
    • Necessary to give business efficacy (as per the Moorecock)
    • So obvious it goes without saying (As per Shirlaw)
    • Capable of clear expression (Codelfa – common contemplate irrelevant if no obvious solution could be clearly determined)
    • Does not contract any express term

Implied in Law

  • Terms implied in law apply to ALL contracts of a particular type (eg. All rental agreements)
  • Mutual trust and confidence in employment may well be implied in law (Lennon v SA)
  • Implied where necessary to give reasonable and effective operation to contracts of that type (Byrne v Australian Airlines)
  • Implied term to keep lifts, chutes, common areas, etc. in good repair as part of tenancy agreement (Liverpool City Council v Irwin)
  • Statutory implied terms (eg. Sale of Goods Act) apply to all Sale contracts
  • Not rooted in the factual matrix of one specific contract.

Universal Terms

  • Good Faith not REALLY recognised in Australia (ACL explanatory notes)

Implied Terms Inserted by Statute

  • State Level: Sale of Goods Act 1986 (Qld)
    • Applies only to the sale of goods – not pure services, hire, etc. however it applies between businesses, as well as business-consumer transactions
    • CAN be excluded by the intention of the parties (s56)
    • S15 – Title – implies that the seller has the right to sell the goods, and that no third party has rights/charges over them. Also applies to IP Rights (Nibblet v Confectioners)
    • S16 – Goods sold by description will correspond to that general description (Grant v Knitting Mills) – but only speaks to the identity of the goods, not the QUALITY of the goods (Ashington Piggeries)
    • S17 - Quality and fitness – only applies to ‘merchandisable quality’ if sold by description, or fitness for any particular purpose drawn to the sellers attention during negotiations.
  • Remedies
    • Breach of a condition – right to reject goods prior to acceptance
    • Breach of a warranty – damages
  • Cth Level: Competition and Consumer Act (2010) – particularly Schedule 2 – Australia Consumer Legislation
    • General consumer conditions and warranties – applies all interactions between consumers and corporations (State equivalents to circumvent Constitutional difficulties)
    • Consumer: Purchase under 40k or of a kind ordinarily acquired for household use/consumption that was not purchased for resale or resupply
    • Statutory Guarantees replace the traditional TPA ‘Implied Terms’
    • Still Non-excludable (s64)
    • s51 Guarantee as to title (As per SoG)
    • s52 Guarantee as to undisturbed possession (As per SoG)
    • s53 Guarantee as to undisclosed securities etc. (As per SoG)
    • s54 Guarantee as to acceptable quality (clearer than merchandisable – includes safe, durable, free from defects, acceptable appearance, and fit for ‘ordinary’ purposes)
    • s55 Guarantee as to fitness for any disclosed purpose etc. (As per SoG)
    • s56 Guarantee relating to the supply of goods by description (As per SoG)
    • s57 Guarantees relating to the supply of goods by sample or demonstration model
    • s58 Guarantee as to repairs and spare parts
    • s59 Guarantee as to express warranties
    • s60 Guarantee as to due care and skill (Services)
    • s61 Guarantees as to fitness for a particular purpose etc. (Services)
    • s62 Guarantee as to reasonable time for supply (Services)
    • s63 Services to which Subdivision does not apply

Learning Guide Cases

*Codelfa Construction v State Rail Authority
Relevant To: Implied Terms – BP Refinery Test
Issue: Was there an implied term to the effect that if the construction work was delayed because statutory authority was not a valid defence to nuisance, the construction company would not have to pay for failing to meet their deadlines?
Held: No, there was not. Both parties clearly anticipated that it was a valid defence. Had they identified it might not be, there were many possible outcomes. Contracts should be read according to their plain and ordinary meaning. It was not ‘so obvious’ what they would have concluded.
HC adopted the BP Refinery test for implying terms, which requires:
(1) it must be reasonable and equitable;
(2) 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;
(3) it must be so obvious that “it goes without saying”;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract.

Con-stan Industries v Norwich
Relevant To: Implied Terms – Custom
Issue: Was the custom that brokers were responsible for paying insurance sufficiently notorious that it constituted a term of the contract?
Held: No, it was not. They could not satisfy the court of the existence of the custom.
The test set out was: (1) The custom must be proved as a question of fact
(2) The custom must be so notorious that everyone who deals in that industry can be assumed to know it. If so, it doesn’t matter if the party bound by it doesn’t actually know it.
(3) The custom must not contradict any express terms of the contract.

The Moorcock
Relevant To: Implied Terms – origin – business efficacy
Issue: Was there an implied term that the wharf owner was responsible for the safety of a ship paying to dock at their wharf that was damaged when the tide went down, despite the lack of express terms to that effect?
Held: Yes, they were, as they were in a better position to identify and warn/deal with the risk than the ship owners, who were unfamiliar with that wharf.

BP Refinery v Shire of Hastings
Relevant To: Implied Terms – BP Refinery Test
Issue: Did a transfer of the lease from one BP company to another constitute the abandonment of the agreement that they could continue occupying it on preferred terms, or could they imply a term allowing it to continue through the transfer.
Held: It was a sufficiently obvious, equitable, and necessary term as corporate restructuring is commonplace. Set out the following test:
(1) It must be reasonable and equitable;
(2) 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;
(3) It must be so obvious that “it goes without saying”;
(4) It must be capable of clear expression;
(5) It must not contradict any express term of the contract.

Attorney General of Belize v Belize Telecom
Relevant To: Implied Terms – BP Refinery Test
Issue: Could the Belize government imply a term into the contract allowing them dismiss the directors of Belize Telecom?
Held: Yes, they could imply the term, even though it was sufficiently complex that it couldn’t have been easily articulated, it was still capable of clear communication. They emphasised that the BP Refineries test was not 5 independent tests, but rather a collection of different ways of illustrating the purpose of implying terms.

Liverpool City Council v Irwin
Relevant To: Implied Terms – Implied by law.
Issue: Was there an implied term in residential tenancies that the landlord must take reasonable care of utilities and common areas?
Held: Yes, there was – it could be implied in law to that effect even without statutory provisions – particularly in light of the recommendations that such statutory provisions be implemented and the terrible state of the building leading to inevitable breaches of other statutory obligations (such as parties injuring themselves due to the owners negligence)

Lennon v South Australia
Relevant To: Implied Terms – Implied by Law.
Issue: Was there a term of “mutual trust and confidence” in employment implied in fact and/or law?
Held: Yes, there was – ‘each must not act in a manner likely to destroy seriously the relationship of confidence and trust between them’

Sale of Goods Act 1896 (Qld) ss 14, 37, 54
States that: The breach of a condition allows you to return the goods and repudiate the contract PRIOR to accepting goods. Afterwards, it only entitles you to damages. Breach of a warranty only entitles you to damages.

Sale of Goods Act 1896 (Qld)s 56
States that: Implied terms/conditions can be varied by express terms of the contract.