Terms of a formally written contract

Implied Terms in fact:

The Court may imply a term in fact on the grounds that such terms are either necessary to give effect to the parties’ intentions and/or are so obvious that it would have clearly part of parties’ intentions.  These grounds are essentially legal tests applied by the Courts:

• Business Efficacy Test – where the term to be implied is objectively necessary for the contract to actually work in practice, such that it gives ‘business efficacy’ to the contract itself.

• “Officious bystander” Test – where if a third-party, being the ‘officious bystander’, had asked the contracting parties if they wanted to include the term in question, then parties would have said “Oh, of course!”, and that that they had not specifically discussed or reduced the term into writing because it was so obvious that they had thought it did not need to be included. 

In applying the above tests, the Courts may consider the circumstances surrounding the contract and the conduct of the parties but it cannot conflict or contradict any of the express terms of the contract.

One example of a term implied in fact would be that a builder who constructs a house is required to use proper functioning equipment, or put another way, that the builder is not to use non-functioning defective equipment, which is something so obvious that it any person would have thought it was a given and would understandably not think would be needed to be put in writing.

Implied Terms in law:

These are terms that are implied into a contract by virtue of case precedents where Court has ruled that a particular term is to be implied into a certain class of contract.  If the Court implies a particular term in a contract, this is binding for all other existing and future contracts of the same class – this is regardless of the parties’ actual intentions.  The reason for this is that such terms implied in law are a matter of overarching public policy which in the view of the Courts, should be reasonably applicable to all relevant contracts.

One example of an implied term in law would be the implied term that employees, in the execution of their work duties under their employment contracts, are required to do so with reasonable care and skill. This implied term therefore is applicable to all employment contracts, regardless of whether it is specifically written in the employment contract.

The terms of any written contract, whether express or implied, invariably form the very basis of parties contractual obligations (and expectations arising from the same). When disputes arise, it is very common to find that each party had a very different understanding of the terms (and had differing expectations) in the contract, and the starting point usually is to go back to the written terms of the contract. When such written terms are missing or not expressly provided for in the contract, then the party seeking to imply a term into a contract would have to prove to the Court the existence and/or legal appropriateness of implying such a term based on the relevant legal tests. At that juncture, a party may find it difficult or face an uphill battle to convince the Court to find in their favour and imply the term they seek to rely on. In that sense, it would important to have express terms so as to not face this additional hurdle when enforcing the terms of a contract. Therefore, it is important to seek legal advice when drafting contracts so as to prevent disputes as to these terms later on.