D. Terms frequently implied in fact

The following are some of the terms which are most commonly implied into contracts, essentially on the basis that they reflect the parties intentions or the objective meaning of the contract.

1. Co-operation

Where performance of a contract cannot take place without the co-operation of both parties, the courts may imply a term that co-operation will be forthcoming. To quote Lord Blackburn in Mackay v Dick (1881) 6 App Cas. 251:

“... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

However, the principles governing the implication of terms in fact still apply, so that:

• a requirement for co-operation will only be implied to the extent that it is necessary to make the contract workable (Mona Oil Equipment & Supply Co Ltd v Rhodesia Railways Ltd [1950] WN 10); and

• the duty of co-operation is to be determined, not by what might appear reasonable, but by reference to the contract terms and the obligations they impose upon each party (James E McCabe Ltd v Scottish Courage Ltd [2006] EWHC 538 (Comm)).

In addition the High Court has refused to imply a term requiring a party to an agreement to cooperate in the fulfilment of a condition precedent to its own obligations coming into effect (Ouais Group Engineering & Contracting v Saipem Spa & Ors (2013)[2013] EWHC 990 (Comm)).

2. Non-prevention

The essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing (Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No. 2) [2007] EWHC 447 (TCC) ). The classic formulation is in Stirling v Maitland [1864] 122 E.R. 1043, as follows:

"if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative".

The party's obligation is not to actively prevent, as opposed to actively assist (Taylor v Rive Droite Music Ltd [2005] EWCA Civ 1300). Generally the act complained of must be wrongful, either as a breach of contract or tortious (Luxor (Eastbourne) Limited and Others v Cooper [1941] AC 108).

3. Right to terminate an indefinite contract

Where a contract is silent on term or termination rights, the courts may imply a term permitting its termination on "reasonable notice" by one or both parties.

4. Contractual discretion must not be exercised arbitrarily

A power conferred by a contract on one party to make decisions which affect both parties must be exercised honestly and in good faith, for the purposes for which it was conferred and must not be exercised arbitrarily, capriciously or irrationally (Abu Dhabi National Tanker Co v. Product Star Shipping Ltd (The "Product Star") [1993] 1 Lloyd's Rep 397, 404 and Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116).

The discretion must be exercised rationally by the decision maker, that is after consideration of, and on the basis of, the relevant facts. However, the decision itself need not be objectively reasonable.

In Braganza v BP Shipping Ltd [2015] UKSC 17 (18 March 2015) the Supreme Court discussed the similarity between the rationality requirement and the test for Wednesbury unreasonableness (the test applied to determine whether a decision is eligible for judicial review). A decision is only Wednesbury unreasonable if the decision maker has not taken the correct matters into account or, having done so, has made a decision so unreasonable that no reasonable person acting reasonably could have made it.

However, no constraints apply where the discretion is simply as to whether to exercise an absolute contractual right. In Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200 the contract provided for the calculation of service failure points and gave the client a discretion as to whether to penalise the supplier for failure. The Court of Appeal held that the client was not constrained by the requirement to act rationally in its exercise of what was an absolute contractual right.

Clearly whether a party has a contractual discretion or an absolute contractual right is key. The High Court considered these issues in a case involving employees' bonus calculations (Brogden & Anor v Investec Bank Plc [2014] EWHC 2785 (Comm)). The court held that the following factors point to a discretion:

• The contract gives responsibility to one party for making an assessment or exercising a judgement on a matter which materially affects the other party’s interests.

• The matter is one about which there is ample scope for reasonable differences of view.

• The decision is final and binding on the other party in the sense that a court will not substitute its own judgment for that of the party who makes the decision.

• The parties' relationship is an employment one, which is characterised by obligations of good faith and fair dealing.

Onerous or unusual contract terms must be brought to the attention of the other party

Any onerous or unusual term on which a party seeks to rely must be fairly brought to the notice of the other party, if it is to be enforced (Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433).