Implied Terms (OCR A-Level Law): Revision Notes
Implied Terms
Introduction to implied terms
Not all contract terms are expressly stated or written down. Sometimes, circumstances arise that the original express terms do not cover. In such situations, the law allows terms to be implied into the contract to fill these gaps.
Implied terms are unspoken or unwritten obligations that become part of a contract through operation of law, custom, or judicial interpretation. These terms exist alongside any express terms that the parties have agreed upon.
The leading case demonstrating this principle is Grant v Australian Knitting Mills Ltd (1936), where the claimant purchased woollen underpants containing chemical traces that caused a painful skin disease. The case established that implied terms exist to protect parties when express terms do not cover every eventuality.
Three ways terms can be implied into contracts
The law recognises three distinct methods through which terms can become implied into a contract:
1. Implied through custom
Terms can be implied where common practices over a long period of time create actual and enforceable obligations. These are practices that have become so established within a particular trade or locality that they are assumed to form part of any contract within that context.
The key case is Hutton v Warren (1836), which established that customary practices in specific industries or localities can create implied contractual terms that bind the parties, even if never explicitly discussed.
2. Implied by statute
Parliament can impose terms into contracts regardless of what either party intended. This typically occurs to protect vulnerable parties, particularly consumers, from unfair terms or practices. These statutory implied terms cannot be excluded by the parties and override any contrary express terms.
The primary legislation in this area is the Consumer Rights Act 2015, which automatically implies various protective terms into consumer contracts.
3. Implied by fact
Courts may imply terms during a dispute to reflect the unexpressed intentions of the parties. This occurs in three specific circumstances:
Through common trade practices
Where an industry operates according to specific professional customs, these practices may be implied as terms. This is similar to implication through custom but is specific to particular trades or professions.
Through the 'officious bystander' test
This test asks: if an interfering third person had been present when the contract was formed and suggested adding a particular term, would both parties have immediately agreed? If the answer is obviously yes, that term can be implied.
The test was established in Shirlaw v Southern Foundries Ltd (1939) and requires that the term would have been so obvious to both parties that they would have said "oh, of course!" if someone had suggested including it.
To preserve business efficacy
Terms can be implied to ensure that the contract actually works in practice. If a contract would be commercially pointless or impossible to perform without a particular term, the courts may imply that term to give the agreement practical effect.
Landmark Case: The Moorcock (1889)
Facts: The defendant owned a wharf and allowed the claimant to dock their ship at a jetty. Both parties knew the ship would be damaged at low tide if it remained at the jetty, but this was never discussed. When the ship was badly damaged at low tide due to an uneven riverbed, a dispute arose.
Decision: The court implied a term that the wharf owner would take reasonable care to ensure the berth was safe. Without this implied term, the contract would lack commercial sense – the claimant would inevitably suffer damage each time they used the wharf.
Principle: This established the business efficacy test for implying terms into contracts.
Judicial guidance on implying terms
The courts have emphasised that they will not imply terms simply because they seem reasonable. There must be a stronger justification.
The necessity test
In Liverpool City Council v Irwin (1977), Lord Cross in the House of Lords stated that the insertion of an implied term had to be 'necessary', not merely reasonable or desirable.
This establishes a high threshold for implying terms – the contract must genuinely need the term to function properly.
The Marks and Spencer test
Marks and Spencer v BNP Paribas (2015) established the leading modern authority on when courts will imply terms at common law. The Supreme Court laid down the following principles:
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A term will only be implied where it is strictly necessary for business efficacy. The contract must genuinely need the term to function properly in commercial or practical terms.
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It is not enough that the parties would have agreed to the term if suggested. The test is more demanding than the officious bystander test alone. Mere agreement is insufficient; the term must be necessary.
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The test is not one of absolute necessity but whether, without the term, the contract would lack commercial or practical coherence. The contract must make sense without the term, though it may work less efficiently.
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A term will not be implied where it 'lies uneasily' with the express terms. Implied terms must complement, not contradict, what the parties have expressly agreed. The express terms take priority.
Terms implied by statute: the Consumer Rights Act 2015
Background and purpose
The rise of consumer society created significant unequal bargaining power between consumers and businesses. Consumers typically have far less negotiating power than companies and may be subject to unfair terms.
To address this imbalance, successive governments have introduced statutory terms that are automatically implied into consumer contracts. These terms protect consumers by establishing minimum standards that businesses must meet.
Critical Point: Neither party can ignore or exclude these statutory implied terms. They override any attempt by businesses to contract out of these obligations.
The Consumer Rights Act 2015
The main statute governing this area is the Consumer Rights Act 2015 (CRA 2015). This Act consolidated and updated previous consumer protection legislation, creating a single, comprehensive framework.
The Act implies different terms depending on whether the contract involves goods or services:
Terms for the supply of goods
Section 9: Goods to be of satisfactory quality
Goods must meet the standard that a reasonable person would consider satisfactory, taking into account their description, price, and all other relevant circumstances. This includes factors such as fitness for purpose, appearance and finish, freedom from minor defects, safety, and durability.
Section 10: Goods to be fit for a particular purpose
Where the consumer makes known to the trader any particular purpose for which the goods are being acquired, the goods must be reasonably fit for that purpose. This applies whether the purpose is common or specialised.
Section 11: Goods to be as described
Goods must match any description given of them, whether orally or in writing. This includes descriptions in advertising, product labels, and sales discussions. Any significant mismatch between description and reality constitutes a breach.
Terms for the supply of services
Section 49: Service to be performed with reasonable care and skill
Any service provided must be carried out with the degree of care and skill that a reasonable person would expect from a competent service provider in that field. The standard is objective and professional.
Section 52: Service to be performed within a reasonable time
Where no specific time has been agreed for completing the service, it must be performed within a reasonable time. What is reasonable depends on all the circumstances, including the nature and complexity of the service.
Key cases on implied terms
Grant v Australian Knitting Mills Ltd (1936)
Case: Grant v Australian Knitting Mills Ltd (1936)
Facts: The claimant purchased woollen underpants that contained traces of chemicals, which caused him to develop a painful skin disease.
Legal principle: This case established that implied terms protect parties when express terms do not cover every eventuality. The manufacturer had breached implied terms regarding the quality and safety of the goods, even though nothing was expressly stated about chemical content.
Significance: Demonstrates the protective function of implied terms in consumer transactions.
The Moorcock (1889)
Case: The Moorcock (1889)
Facts: The defendant owned a wharf and allowed the claimant to dock their ship at a jetty. Both parties knew the ship would rest on the riverbed at low tide, but nothing was said about the condition of the bed. The ship was badly damaged when the tide went out because the riverbed was uneven.
Legal principle: The court implied a term that the wharf owner would take reasonable care to ensure the berth was safe. This was necessary to preserve business efficacy – without this term, the contract would be pointless, as the claimant would inevitably suffer damage each time they used the wharf.
Significance: Established the business efficacy test for implying terms. If a contract cannot function properly without a particular term, that term can be implied.
Poussard v Spiers and Pond (1876)
Case: Poussard v Spiers and Pond (1876)
Facts: Poussard was hired as the lead actor in an operetta. When she fell ill and was unable to perform on opening night, her lead role was given to an understudy. Poussard later recovered and sued for breach of contract when she was not reinstated.
Legal principle: The court held that performing on opening night was such a significant term that missing it constituted a fundamental breach. This demonstrates the significance of certain terms in determining breach and remedies.
Significance: While primarily a case about breach, it illustrates how implied terms regarding timing and performance can be crucial to a contract's operation.
Remember!
Key principles to remember:
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Implied terms fill gaps in contracts where express terms do not cover specific situations, protecting parties from unforeseen circumstances
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Three methods of implication: Terms can be implied through custom (established practices), by statute (Consumer Rights Act 2015), or by fact (business efficacy, officious bystander test, or trade practice)
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Courts require necessity: Following Marks and Spencer v BNP Paribas (2015), terms will only be implied where strictly necessary for business efficacy – reasonableness alone is insufficient
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Consumer Rights Act 2015 protection: Statutory terms automatically protect consumers through mandatory provisions covering quality (s9), fitness for purpose (s10), description (s11), care and skill (s49), and reasonable time (s52)
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Implied terms cannot contradict express terms: Any implied term must work alongside, not against, what the parties have expressly agreed – express terms take priority when there is conflict