Implication of Terms

Question 1

What are the two requirements for implication of a term at common law?

Answer 1

1. The term must be sufficiently certain to have been enforced had it been an express term.
2. The term must be consistent with the express terms of the contract (Solitaire)

Question 2

Cunlifffe-Owen (3 requirements for terms implied by custom or usage + the general requirement)

Answer 2

The term must be certain, notorious (so well known in the market in which it is alleged to exist that those who conduct business in that market contract w/ the usage as an implied term) and reasonable.

For a practice to be a recognised usage “it should be established as a promise having binding effect”; i.e. the practice must be observed due to a sense of legal obligation.

Question 3

5 requirements given by Lord Simon in BP Refinery for terms implied in fact, which might overlap

Answer 3

1) Reasonable and equitable
2) Necessary to give business efficacy to the contract
3) So obvious it “goes w/o saying”
4) Capable of clear expression
5) It must not contradict any express term of the contract

Question 4

What is the “business efficacy test”? Criticism?

Answer 4

Moorcock, as interpreted by subsequent cases, requires that the implied term be necessary to give such business efficacy to the transaction as must have been intended at all events by both parties.”

McK notes that arguably in The Moorcock itself the term implied was not actually necessary – the issue was who was to take the risk of the riverbed being unsuitable for the vessel, and business efficacy does not seem to require that the risk be allocated. This is consistent w/ the fact that no mention of “necessity” was made in the judgment.

Question 5

What is the “officious bystander” test? Criticism?

Answer 5

An implied term must be “so obvious it goes without saying”, such that if the parties were making their bargain and an officious bystander were to suggest express provision for the term, the parties would testily reply “Oh, of course!”

Lord Hoffmann in Belize - The “officious bystander” test leaves room for barren and irrelevant argument about how the parties would have reacted to the amendment and may divert attention from determining what the parties intended to be the terms of the contract, to speculating about what the parties would have thought about the proposed term.

Question 6

Attorney General of Belize (general approach + “usual inference”)

Answer 6

Implication is but one aspect of construction - the various tests for implication are merely ways of expressing the central question; what would the instrument, read as a whole against the relevant background, be reasonably understood to mean?

Where an instrument was silent on the question of what was to happen in some event, “the most usual inference is that nothing is to happen…the loss lies where it falls”.

Question 7

Trollope

Answer 7

“A term can be implied in fact only if the parties must have intended that term to find part of their contract; it is not enough that such a term would have been adopted by the parties as reasonable men were it suggested to them”

Question 8

Geys (interpretation of Belize)

Answer 8

Interpreted Belize as confined to implied terms in fact

Question 9

SNCB Holding (interpretation of Belize)

Answer 9

“Necessity” should be interpreted as “necessary to spell out what the contract actually means, according to the parties’ reasonable expectations”

Question 10

Does Belize relax the strict test for implication in fact?

Answer 10

No. In The Reborn – Lord Clarke noted that Lord Hoffmann did not resile from the proposition that it must be necessary, not merely reasonable, to imply the proposed term

Question 11

Does Belize relax the strict test for implication in fact?

Answer 11

In The Reborn Lord Clarke noted that Lord Hoffmann did not resile from the proposition that it must be necessary, not merely reasonable, to imply the proposed term. However, Hooley thinks that the broader contextual approach in Belize has allowed implication of terms in fact that would probably not have passed either the bystander or efficacy tests (e.g. Gubbins)

Question 12

Two criticisms of Belize (OSH and McCaughran)

Answer 12

o OSH – where the parties have simply not thought out in advance what should happen in the event of a particular eventuality it is artificial to regard the implication of terms as mere interpretation of the bargain. Indeed as Lord Steyn has argued extra-judicially, it is a “myth to regard an implied term in fact as based on an inference of the actual intention of the parties”.
o McCaughran – the third party observer has become the person to whom the relevant question is addressed and he answers rather than asks the relevant question

Question 13

Does Belize relax the strict test for implication in fact?

Answer 13

In The Reborn Lord Clarke noted that Lord Hoffmann did not resile from the proposition that it must be necessary, not merely reasonable, to imply the proposed term. However, Hooley thinks that the broader contextual approach in Belize has allowed implication of terms in fact that would probably not have passed either the bystander or efficacy tests (e.g. Gubbins).

Question 14

Crema

Answer 14

The “default position” is a presumption against implication.

Question 15

According to Hooley, what are the three roles played by reasonableness in implication of fact after Belize?

Answer 15

(a) The term implied must be reasonable
(b) The express terms must be construed in a reasonable manner
(c) The term must be necessary to give effect to the parties’ reasonable expectations

Question 16

Name three distinctions between implied terms in law and fact.

Answer 16

i. Peden - Implied terms in fact are “those terms consistently implied into all contracts of a particular type because of the nature of the contract, rather than the supposed intentions of the parties as w/ implied terms in fact”
ii. Lord Steyn, Hyman - Implied in fact or “individualized implied terms” “operate as ad hoc gap fillers”; implied by law or “standardized implied terms”“operate as general default rules.”
iii. Shell UK – such terms “are not founded on the parties’ intentions, but on more general considerations”

Question 17

What is the test for implication of terms in law?

Answer 17

Irwin/Scally suggest the test is one of necessity, but as McK and Atiyah have pointed out the term implied in Irwin was not really necessary, although it might have been reasonably necessary (same arguably goes for Scally)

Indeed if Belize is to be restricted to implication in fact (as per Geys) then a test of necessity really begs the question, necessary for what?

Hence Dyson LJ has suggested in Crossley that rather than focus on the elusive concept of necessity, it is better to recognise that, to some extent, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations.”

Question 18

Why does Phang suggest the fact/law distinction for implied terms is flawed?

Answer 18

In Scally the implied term was restricted to a very particular set of facts (and indeed Crossley rejected a wider application of Scally) - this undermines the argument that terms implied by law operate as standardized default rules.