4.5 Implied Terms

The express terms of an agreement may not tell the complete story, because in certain situations a term or terms may be «implied» into a contract, although neither party has made reference to it at the time of the agreement. This may arise from one or other of the parties to the agreement claiming that although a particular term has not been set out explicitly, either in words or writing, it should nevertheless be part of the contract. In addition, in some situations, a term will be implied because Parliament has by statute required that all contracts of a particular type should contain such a term.

The order of treatment here will be to look first at terms implied by the courts, which can be further divided into terms implied by custom, terms implied in fact, and terms implied by law. Terms implied by statute will then be considered.

4.5.1 Terms implied by the courts

The general approach of the courts is that they are reluctant to imply terms. The parties are generally expected to take the trouble to set out the provisions of their agreement in full. A contract in which certain terms are implicit clearly gives great opportunities for dispute, and the courts have been reluctant to give any encouragement to parties to try to escape from contractual obligations on the basis of some term which was not stated, but which is now alleged to be of great significance. There are certain situations, however, where this reluctance is overcome, and terms are implied. When the courts do this, they run the risk of suggesting that all contractual issues can be resolved by deciding what the Parties must have agreed at the time of the contract - that is, the myth of presentation». A «relational» approach would recognise that not all issues can be solved in that way, in particular where a contract or a contractual relationship develops over time. This would allow a more flexible approach to the implication of terms to deal with particular situations.

The first basis on which the courts, applying the classical approach, will imply terms is where the implication of the term derives from a local or trade custom.

4.5.2 Terms implied by custom

Provided that there is sufficient evidence to establish the custom, the courts will be prepared to interpret the contract in the light of it. An early example is Hutton v Warren, which has been discussed above, in connection with the parol evidence rule. As will be remembered, a tenant claimed to be entitled, on quitting his tenancy, to an allowance for seed and labour. There was nothing in the lease to this effect, but the court accepted that this was a well established local custom, and implied a term. A different kind of implication was suggested in British Crane and Hire Corp Ltd v Ipswich Plant Hire Ltd. This concerned a contract for the hire of an earth moving machine, together with a driver, and the issue of who was responsible for the cost of pulling it out of marshy land in which it had become stuck. One of the factors which the Court of Appeal regarded as relevant was that there was evidence that it was normal practice in the trade for liability to be placed on the hirer, rather than the owner, in such circumstances. Lord Denning commented:

The [hirers] themselves knew that firms in the plant hiring trade always imposed conditions in regard to the hiring of plant: and that their conditions were on much the same lines.

This, together with the fact that the hirers had previously contracted with the owners on such terms, led to the implication that liability should rest with the hirer. The issue is thus primarily one of fact. The person wishing to rely on the custom must produce convincing factual evidence of its existence and general acceptance. Assuming that there is sufficient evidence, the courts will imply a term to give it effect.

Such implication will not be possible, however, if the contract contains an express term which is inconsistent with the custom. In that case, the express term will prevail over the custom. In Les Affreteurs Reunis SA v Leopold Walford (London) Ltd, there was evidence of a custom that a broker’s commission was payable only in relation to hire which had been earned under a charter. The contract, however, provided that commission was payable on the signing of the charter. This specific term was held to indicate the parties’ intention in relation to this issue. There was therefore no room for a term implied from custom.